A decomposition of the increased stability of GDP growth

Since 1984, the US economy has grown at a remarkably steady pace. An analysis of this increased stability shows that every major component of GDP has exhibited smoother growth. However, two components - inventory investment and consumer spending - are responsible for the bulk of the decline in overall volatility. The composition of the variability of growth gives some clues to the causes and consequences of the less volatile economy. The decomposition suggests that structural, regulatory, and institutional changes over the past fifteen to twenty years have contributed to lower volatility in several sectors - housing investment, trade, and most notably, inventory investment. These changes could have promoted stability by muting the way economic shocks and policy changes are transmitted through various sectors.