Stochastic Volatility, Financial Frictions, and the Great Moderation
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Date
2014-09-29
Authors
Higgins, Charles
Journal Title
Journal ISSN
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Publisher
University of Oregon
Abstract
This dissertation examines changing macroeconomic volatility and some of the empirical difficulties associated with studying volatility. Macroeconomic volatility can potentially have large welfare costs, so understanding why volatility changes over time is important. A natural setting to study changing macroeconomic volatility is the Great Moderation, a period of reduced volatility in the United States. This dissertation studies this time period in two ways. First, it explores the importance of specification when estimating models during this time period. Second, it looks at the role financial frictions, monetary policy, and luck played in causing the Great Moderation. Large, structural models are estimated to study these problems. One of the main findings from the dissertation is that changing financial frictions were an important factor in reducing macroeconomic volatility during the Great Moderation.