TY  - JOUR
AU  - Stock,James H.
AU  - Watson,Mark W.
TI  - Has the Business Cycle Changed and Why?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9127
PY  - 2002
Y2  - August 2002
UR  - http://www.nber.org/papers/w9127
L1  - http://www.nber.org/papers/w9127.pdf
N1  - Author contact info:
James H. Stock
Department of Economics
Harvard University
Littauer Center M27
Cambridge, MA 02138
Tel: 617/496-0502
Fax: 617/495-7730
E-Mail: James_Stock@harvard.edu

Mark W. Watson
Department of Economics
Princeton University
Princeton, NJ 08544-1013
Tel: 609/258-4811
Fax: 609/258-5533
E-Mail: mwatson@princeton.edu
M1  - published as James H. Stock, Mark W. Watson. "Has the Business Cycle Changed and Why?," in Mark Gertler and Kenneth Rogoff, editors, "NBER Macroeconomics Annual 2002, Volume 17" MIT Press (2003)

AB  - From 1960-1983, the standard deviation of annual growth rates in real GDP in the United States was 2.7%. From 1984-2001, the corresponding standard deviation was 1.6%. This paper investigates this large drop in the cyclical volatility OF real economic.activity. The paper has two objectives. The first is to provide a comprehensive characterization of the decline in volatility using a large number of U.S. economic time series and a variety of methods designed to describe time-varying time series processes. In so doing, the paper reviews the literature on the moderation and attempts to resolve some of its disagreements and discrepancies. The second objective is to provide new evidence on the quantitative importance of various explanations for this 'great moderation.' Taken together, we estimate that the moderation in volatility is attributable to a combination of improved policy (20-30%), identifiable good luck in the form of productivity and commodity price shocks (20-30%), and other unknown forms of good luck that manifest themselves as smaller reduced-form forecast errors (40-60%).
ER  -