The Structural Dynamics of U.S. Output and Inflation: What Explains the Changes?


  • We would like to thank four anonymous referees, the editor (Ken West), Tim Cogley, Tao Zha, Chris Sims, Eric Leeper, Domenico Giannone, Howard Petith, and the participants of seminars and conferences for comments and suggestions. Canova and Gambetti acknowledge the financial support of the Spanish Ministry of Education through Grant SEJ-2004-21682-E. Canova also acknowledges financial support from CREI.


We examine the dynamics of U.S. output and inflation using a structural time-varying coefficients vector autoregression. There are changes in the volatility of both variables and in the persistence of inflation, but variations are statistically insignificant. Technology shocks explain changes in output volatility; real demand disturbances variations in the persistence and volatility of inflation. We detect important time variations in the transmission of technology shocks to output and demand shocks to inflation and significant changes in the variance of technology and of monetary policy shocks.