Output fluctuations in the United States: what has changed since the early 1980s?

We document a structural decline in the volatility of real U.S. GDP growth in the first quarter of 1984. As a means of understanding the dramatic volatility reduction, we decompose output growth by major product type and provide evidence that the break emanates from a reduction in the volatility of durable goods production. We further show that the break in durables is roughly coincident with a break in the proportion of durables accounted for by inventories. We note that the break in output volatility affects the implementation of a wide range of simulation and econometric techniques and offer one important illustration of this in the context of a regime-switching model of output growth.