DP5879 The Structural Dynamics of US Output and Inflation: What Explains the Changes?

Author(s): Fabio Canova, Luca Gambetti, Evi Pappa
Publication Date: October 2006
Keyword(s): persistence, structural time varying VARs, transmission, variability
JEL(s): C11, E12, E32, E62
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5879

We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labour productivity always increase in response to technology shocks.