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THE DECLINE IN THE VOLATILITY OF THE BUSINESS CYCLES IN THE UK
Author(s) -
ATANASOVA CHRISTINA V.,
GANG JIANHUA
Publication year - 2008
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2008.01079.x
Subject(s) - volatility (finance) , economics , business cycle , unemployment , monetary economics , econometrics , dynamic factor , variance (accounting) , structural break , monetary policy , macroeconomics , accounting
We analyse the sources of the decline of business cycle volatility in the UK using a dynamic factor model that allows for the presence of a structural break in the conditional mean and variance of output, sales, income and unemployment. We augment the factor model with an economic component to investigate the role of structural changes and improved monetary policy in the volatility decline of the series. Our results suggest that the dominant cause for the observed volatility decline is the reduced variability of shocks.