New dynamics of consumption and output

Chunji Xuan, Chang-Jin Kim, Dong Heon Kim

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Since the mid-1980s, the volatility of major macro variables has decreased remarkably, known as the Great Moderation. Even though a great deal of literature addresses the sources of the Great Moderation, its association with potential changes in the dynamics of consumption or output has not been investigated rigorously. This paper reports two empirical findings: i) a faster adjustment of output to changes in its long-run random walk component and ii) a faster adjustment of consumption to changes in permanent income (as approximated by the random walk component of real output) since the mid-1980s. Our interpretation is that a faster diffusion of technology shocks induced by improved information technology may be responsible for the former. In the presence of precautionary savings, a change in the consumer behavior induced by lower uncertainty about future income may be responsible for the latter. The change in output dynamics itself may also be responsible for the change in consumer behavior, as implied by Deaton (1991).

Original languageEnglish
Pages (from-to)50-59
Number of pages10
JournalJournal of Macroeconomics
Volume60
DOIs
Publication statusPublished - 2019 Jun 1

Keywords

  • Diffusion of technology shocks
  • Great moderation
  • Information technology
  • Precautionary savings

ASJC Scopus subject areas

  • Economics and Econometrics

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