The Great Moderation

Starting in the 1980s, everything macro kind of...chilled. Namely, GDP and inflation weren’t nearly as volatile as normal. This period of macroeconomic chill-ness is known as the Great Moderation. While economic expansions were smaller during the Great Moderation than they were in past decades, that’s not what the Great Moderation is known for. It’s known for its moderation...it’s chill, even-keeled nature.

The Great Moderation is generally attributed to a succession of Fed Chairs: Paul Volker, Alan Greenspan, and Ben Bernanke. Bernanke thinks the Great Moderation is probably due to three things: changes in the economy, changes in policy, and pure luck.

The economy became different thanks to the rise of technology and the downfall of regulation. Economic policy became friendlier too, with less protectionism and more openness to trade. Oh, and luck. Unfortunately, ol' Ben thinks that the economic crazy got toned down for a while, and not that the economy is now immune to anything cray.

So...are we still in the Great Moderation? There’s no technical end-date, but many think it’s pretty obvious: the Great Recession, which mainly started in 2008. Others see the Great Recession as nothing other than the greatest speed bump the Great Moderation has yet to see...but that’s all it was—a speed bump.