This paper investigates the sources of significant shifts in the volatility of U.S. macroeconomic variables since the postwar period. The authors estimate Dynamic Stochastic General Equilibrium (DSGE) models that allow for time-varying volatility of structural shocks. They apply this approach to a large-scale business cycle model and find that investment-specific technology shocks are the main cause of the sharp decline in volatility over the last two decades. The study shows that the volatility of macroeconomic variables, such as output, inflation, and interest rates, has changed significantly over time. The "Great Moderation," a period of reduced volatility in the U.S. economy since the mid-1980s, is attributed to a decrease in the volatility of investment-specific technology shocks. These shocks are interpreted as disturbances to the inverse price of investment in terms of consumption goods. The authors also find that financial frictions, such as those in mortgage financing, declined in the early 1980s, which may have contributed to the Great Moderation. The paper uses Bayesian methods to estimate the model and accounts for time-varying volatility. It shows that the decline in the volatility of investment-specific technology shocks is a key factor in the Great Moderation. The authors also find that the relative price of investment has decreased significantly, which is consistent with the observed reduction in volatility. The study highlights the importance of considering time-varying volatility in macroeconomic models and provides insights into the structural causes of the Great Moderation. The results suggest that a reduction in financial frictions, particularly in mortgage financing, played a significant role in the decline in economic volatility. The authors conclude that more detailed DSGE models could help further understand these issues.This paper investigates the sources of significant shifts in the volatility of U.S. macroeconomic variables since the postwar period. The authors estimate Dynamic Stochastic General Equilibrium (DSGE) models that allow for time-varying volatility of structural shocks. They apply this approach to a large-scale business cycle model and find that investment-specific technology shocks are the main cause of the sharp decline in volatility over the last two decades. The study shows that the volatility of macroeconomic variables, such as output, inflation, and interest rates, has changed significantly over time. The "Great Moderation," a period of reduced volatility in the U.S. economy since the mid-1980s, is attributed to a decrease in the volatility of investment-specific technology shocks. These shocks are interpreted as disturbances to the inverse price of investment in terms of consumption goods. The authors also find that financial frictions, such as those in mortgage financing, declined in the early 1980s, which may have contributed to the Great Moderation. The paper uses Bayesian methods to estimate the model and accounts for time-varying volatility. It shows that the decline in the volatility of investment-specific technology shocks is a key factor in the Great Moderation. The authors also find that the relative price of investment has decreased significantly, which is consistent with the observed reduction in volatility. The study highlights the importance of considering time-varying volatility in macroeconomic models and provides insights into the structural causes of the Great Moderation. The results suggest that a reduction in financial frictions, particularly in mortgage financing, played a significant role in the decline in economic volatility. The authors conclude that more detailed DSGE models could help further understand these issues.