The Time-Varying Volatility of Macroeconomic Fluctuations
Alejandro Justiniano, Giorgio E. Primiceri
American Economic Review · 2008 · Volume 98 · Issue 3
Abstract
We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades.
Keywords
General Aggregative Models: Neoclassical, Business Fluctuations, Cycles
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