Why Does Stock Marhet Volatility Change Over Time? 25 16 0.15 teck Returns jonuary 1859-Oocembor 1987 Pptn升 gHion rc1 Figure 4. Predictions of the monthly standard deviations of stock returns(---)and of roducer price index inflation rates(-)for 1859-1887. A 12th-order different monthly intercepts is used to model returns or infation rate, and then the absolute values of the residuals are used to estimate volatility in month t. To model conditional volatility, a 12th in month t based on lagged standard deviation estimates. This plot contains fitted values from the volatility regression models. was a period of very high volatility. Since the early 1950's the volatility of the onetary base growth rate has been relatively low and stable. Both the PPI inflation rate and the monetary base growth rate exhibit much lower levels of volatility after World War II. In each case, the sample used to measure these variables has expanded over time, and there have been major nstitutional changes that have been intended to dampen macroeconomic fluc tuations. without detailed analysis similar to Romer's work on industrial pro duction, unemployment, and gross national product it is impossible to tell how important the changes in measurement techniques have been in reducing vola Table iii contains tests of the incremental predictive power of 12 lags of PPI inflation volatility leer in a 12th-order vector autoregressive (VAR) system for ° It is surprising pattern of volatility is so different for the money base growth rate and the ppi inflation rat rtheless, I have also analyzed the volatility of money supply (M2)growth and the Consumer ex(CPI) inflation rates since 1915, and they lead to similar conclusions The lack of relatiol monetary volatility and price volatility is an interesting question for future research