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The "Great Moderation" in the United Kingdom

Author

Listed:
  • Benati, Luca
Abstract
We use a Bayesian time-varying parameters structural VAR with stochastic volatility for GDP deflator inflation, real GDP growth, a 3-month nominal rate, and the rate of growth of M4 to investigate the underlying causes of the Great Moderation in the United Kingdom. Our evidence points towards a dominant role played by shocks in fostering the more stable macroeconomic environment of the last two decades. Results from counter-factual simulations, in particular, show that (1) the Great Inflation was due, to a dominant extent, to large demand non-policy shocks, and to a lesser extent JEL Classification: E32, E47, E52, E58

Suggested Citation

  • Benati, Luca, 2007. "The "Great Moderation" in the United Kingdom," Working Paper Series 769, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2007769
    Note: 802546
    as

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    References listed on IDEAS

    as
    1. Luca Benati, 2005. "U.K. Monetary Regimes and Macroeconomic Stylised Facts," Computing in Economics and Finance 2005 107, Society for Computational Economics.
    2. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, vol. 94(1), pages 190-217, March.
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    More about this item

    Keywords

    Bayesian VARs; European Monetary System; frequency domain; great inflation; identified VARs; lucas critique; policy counterfactuals; stochastic volatility; timevarying parameters;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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