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Comment on: "Can financial innovation help to explain the reduced volatility of economic activity?"
| Content Provider | Semantic Scholar |
|---|---|
| Author | Wachter, Jessica A. |
| Copyright Year | 2006 |
| Abstract | As Dynan, Elmendorf, and Sichel (henceforth DES) note, the volatility of economic activity fell substantially sometime from the middle of the 1980s to the early 1990s. This decline is documented by McConnell and Perez-Quiros (2000) and Kim and Nelson (1999). Indeed, as shown in Table 1 of DES, the standard deviation of quarterly GDP growth was 4.4% in the 1960–1984 period, but 2.1% in the 1985–2004 period. This decline was not confined to quarterly growth rates: annual growth rates were also affected. Annual GDP growth had a volatility of 2.8% in the earlier period, but 1.4% in the later period. Stock and Watson (2002) demonstrate that this volatility decline also occurred in a number of other macroeconomic time series, indicating that data construction is unlikely to be the explanation. Lettau et al. (2005) show that this decline can help to explain the sustained run-up in equity valuations that occurred in the 1990s. Clearly this decline in volatility is important, and understanding its underlying causes promises to be very useful. Among the explanations given for the decline in macroeconomic volatility are a shift in the economy from production to services, changes in monetary policy, and changes in |
| Starting Page | 151 |
| Ending Page | 154 |
| Page Count | 4 |
| File Format | PDF HTM / HTML |
| DOI | 10.1016/j.jmoneco.2005.10.008 |
| Volume Number | 53 |
| Alternate Webpage(s) | http://finance.wharton.upenn.edu/~jwachter/research/Wachter2006disc.pdf |
| Alternate Webpage(s) | https://www.federalreserve.gov/Pubs/feds/2005/200554/200554pap.pdf |
| Alternate Webpage(s) | https://doi.org/10.1016/j.jmoneco.2005.10.008 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
