Structural evolution of the postwar U.S. economy

Liu, Yuelin and Morley, James (2014) Structural evolution of the postwar U.S. economy. Journal of Economic Dynamics and Control, 42. pp. 50-68. ISSN 0165-1889

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Abstract

We consider a time-varying parameter vector autoregressive model with stochastic volatility and mixture innovations to study the empirical relevance of the Lucas critique for the postwar U.S. economy. The model allows blocks of parameters to change at endogenously estimated points of time. Contrary to the Lucas critique, there are large changes at certain points of time in the parameters associated with monetary policy that do not correspond to changes in “reduced-form” parameters for inflation or the unemployment rate. However, the structure of the U.S. economy has evolved considerably over the postwar period, with an apparent reduction in the late 1980s in the impact of monetary policy shocks on inflation, though not on the unemployment rate. Related, we find changes in the Phillips curve tradeoff between inflation and cyclical unemployment (measured as the deviation from the time-varying steady-state unemployment rate implied by the model) in the 1970s and especially since the mid-1990s.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Economic Dynamics and Control
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2600/2604
Subjects:
ID Code:
130456
Deposited By:
Deposited On:
14 Jan 2019 13:35
Refereed?:
Yes
Published?:
Published
Last Modified:
01 Apr 2020 07:02