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How Benefcial Was the Great Moderation After All?

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  • Pancrazi, Roberto
Abstract
In this paper I compute the welfare e§ect of the Great Moderation, using a consumption based asset pricing model. The Great Moderation is modelled according to the data properties of consumption and dividend growth, which display a reduction of their innovation-volatility and increased persistence. The theoretical model (a long-run risk model), calibrated to match average asset pricing variables in the data, is able to capture the two features of the Great Moderation, and it predicts a welfare loss caused by the Great Moderation (-0.9 percent), due mainly to the utility cost of a late uncertainty resolution.

Suggested Citation

  • Pancrazi, Roberto, 2013. "How Benefcial Was the Great Moderation After All?," Economic Research Papers 270533, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270533
    DOI: 10.22004/ag.econ.270533
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    Citations

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    Cited by:

    1. Giuliano Curatola & Michael Donadelli & Patrick Gruning & Christoph Meinerding, 2016. "Investment-Specific Shocks, Business Cycles, and Asset Prices," Bank of Lithuania Working Paper Series 36, Bank of Lithuania.
    2. Guglielmo Maria Caporale & Michael Donadelli & Alessia Varani, 2014. "International Capital Markets Structure, Preferences and Puzzles: The US-China Case," Discussion Papers of DIW Berlin 1362, DIW Berlin, German Institute for Economic Research.
    3. Curatola, Giuliano & Donadelli, Michael & Gioffré, Alessandro & Grüning, Patrick, 2015. "Austerity, fiscal uncertainty, and economic growth: Insights from fiscally weak EU countries," SAFE Working Paper Series 56, Leibniz Institute for Financial Research SAFE, revised 2015.
    4. Nlemfu Mukoko, Jean Blaise, 2016. "On the Welfare Costs of Monetary Policy," MPRA Paper 72479, University Library of Munich, Germany, revised Jul 2016.
    5. Pancrazi, Roberto, 2015. "The heterogeneous Great Moderation," European Economic Review, Elsevier, vol. 74(C), pages 207-228.
    6. Donadelli, Michael & Paradiso, Antonio, 2014. "Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 206-220.
    7. Benchimol, Jonathan & Qureshi, Irfan, 2020. "Time-varying money demand and real balance effects," Economic Modelling, Elsevier, vol. 87(C), pages 197-211.
    8. Pancrazi, Roberto & Vukotic, Marija, 2012. "Technology Persistence and Monetary Policy," Economic Research Papers 270536, University of Warwick - Department of Economics.
    9. Ibrahim N Ouattara & Balakissa Kone, 2023. "The effect of exchange rate on the money demand: evidence from ECOWAS countries," Economics Bulletin, AccessEcon, vol. 43(4), pages 1565-1580.
    10. Caporale, Guglielmo Maria & Donadelli, Michael & Varani, Alessia, 2015. "International capital markets structure, preferences and puzzles: A “US–China World”," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 85-99.
    11. Curatola, Giuliano & Donadelli, Michael & Grüning, Patrick, 2015. "Matching the BRIC equity premium: A structural approach," Emerging Markets Review, Elsevier, vol. 22(C), pages 65-75.
    12. Eurilton Araújo, 2016. "Monetary Policy Credibility and the Comovement between Stock Returns and Inflation," Working Papers Series 449, Central Bank of Brazil, Research Department.

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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