The paper examines the processes underlying economic fluctuations by investigating the volatility moderation of U.S. economy in the early 1980's. We decompose the volatility decline using a dynamic factor framework into a common stochastic trend, common transitory compo... View more
5. Conditional on Ï, f¸tgtT=1, use the model SPM1 to draw the parameters Ài, i = 1; 2; 3; 4. The conditional densities are in Kim and Nelson (1999).
6. Conditional on fS1tgtT=1, fS3tgtT=1, f¸tgtT=1, ¶0, ¶1, ¼ , 2»»u2u221 use the model SPM1 to draw the parameters ¾ and ¾£. The conditional densities are in Kim and Nelson (1999).
 Diebold FX, Rudebusch GD (1996) Measuring business cycle: a modern perspective. The Review of Economics and Statistics 78:67-77
 Fama EF, French KR (1993) Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33:3-56
 Fama EF, French KR (1996) Multifactor explanations of asset pricing anomalies. Journal of Finance 51:55 - 184
 Forni M, Hallin M, Lippi M, Reichlin L (2000) The generalized dynamic factor model: identißcation and estimation. Review of Economics and Statistics 82:540-554
 Friedman M (1964) Monetary Studies of the National Bureau, the National Bureau enters its 45th Year, 44th Annual Report, 7-25 (NBER, New York); Reprinted in Friedman, M., 1969, The optimum quantity of money and other essays (Aldine, Chicago)
 Friedman M (1993) The "plucking model" of business àuctuations revisited. Economic Inquiry 31:171-177
 Fuhrer JC, Schuh S (1998) Beyond shocks: what causes business cycle? An overview. Conference Series, no. 42. Boston: Federal Reserve Bank of Boston
 Hamilton J (1983) Oil and the macroeconomy since World War II. Journal of Political Economy :228-248