We identify volatility breaks in all testable series in the FRED database over the 1957–2013 period. This yields 17,681 breaks, which we categorize using text analysis. We show that 70.5% of series categories experienced a decline in volatility over the 1985–1999 period, suggesting that the Great Moderation was far broader in scope than the literature has documented. We also show that this decline reversed in 2000, leading to a sharp increase in volatility for most time series categories; however, this did not fully materialize in GDP volatility until the Great Recession. Finally, we identify labor markets, demographics, finance, and government debt as potential drivers of low-frequency shifts in volatility over the 1957–2013 period.

The paper looks at the role of inventories in U.S. cycles and fluctuations. It concentrates on the goods-producing sector and constructs a model that features both input and output inventories. A range of shocks are present in the model, including sales, technology, and inventory cost shocks. It is found that the presence of inventories does not change the average goods sector–cycle characteristics in the United States very much. The model is also used to examine whether new techniques for inventory control might have been an important factor contributing to the decline in the volatility of U.S. GDP growth. It is found that these would have had little impact upon the level of volatility.

As background for this special issue of the Review, this article provides an overview of recent developments in financial structure in the major industrial countries using national flow of funds balance sheet data. We focus in particular on changes in the size and composition of the balance sheet for the major sectors — households, companies, general government, foreign and financial as well as banks and institutional investors separately. Two recent subperiods are distinguished, namely the ‘great moderation’ of high growth and low inflation from roughly 1997–2006 and then the crisis period 2007–10. We discern elements of convergence — notably in corporate leverage — but also some continuing contrasts — such as household debt — between market- and bank-dominated financial systems, while highlighting that short-run changes arising from the conjuncture may blur longer-term trends in financial structure. Looking ahead, the data highlight common challenges from public and household debt, albeit to an extent that varies markedly between countries. Bank deleveraging and recapitalisation appear slow, while a subsector including shadow banks continues to grow except in the US. There are contrasts between France and Italy on the one hand and Germany on the other which underline the vulnerability of the former in the ongoing Euro Area crisis.

U.S. production has shifted from goods-producing to service-producing industries. We assess whether this shift contributed to the decline in U.S. output volatility over the period 1949–2005 and provide an estimate of its relative importance. Growth rates of GDP by industry are analyzed in a seemingly unrelated multivariate autoregression framework with time-varying innovation covariance matrices. These changing unobserved covariance matrices are modeled as a Wishart autoregressive process of order one, which results in a nonlinear state-space system. The particle filter is used to obtain estimates of the innovation covariance matrix at each point in time. Several counterfactual experiments make it possible to apportion the decline in output volatility between the shift in the sectoral composition and changes in innovations. Our main finding is that the shift into the service sector can explain about 30% of the decline in GDP's volatility, despite the fact that some sectors became even more volatile. This result is robust across a wide variety of alternative specifications.

“Good policy” and “good luck” have been identified as two of the possible drivers of the “Great Moderation,” but their relative importance is still widely debated. This paper investigates the role played by equilibrium selection under indeterminacy in the assessment of their relative merits. We contrast the outcomes of counterfactual simulations conditional on the “continuity” selection strategy–largely exploited by the literature–with those obtained with a novel “sign restriction” based strategy. Our results suggest that conclusions achieved under “continuity” are not necessarily robust to the selection of different–still economically sensible–equilibria. According to our simulations, the switch to a hawkish systematic monetary policy may very well induce an increase in output volatility. Hence, our sign restriction–selection strategy “resurrects” the inflation–output policy tradeoff.