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  Alternatives Update 3rd Quarter 2017
Posted Under: Alternatives

The "Great Moderation" is the name attached by economists to the late 1980s through 2007 to describe a period of declining volatility in the business cycle and directly contrasts the preceding period of "Great Inflation." The term was coined by James Stock and Mark Watson in their paper "Has the Business Cycle Changed and Why?" Their findings were presented in April 2002 at an NBER conference and published as a working paper later that year. Stock and Watson put forth 3 possible explanations as to the causes of declining economic volatility: luck, technological and structural changes, or improved monetary policy. In February 2004, Ben S. Bernake, apparently able to scotomize the Dotcom bubble, brought the concept of the Great Moderation to the forefront. Not surprisingly, he made the case that it was improved economic policy that played the dominant role. In the late 1990s, well before Stock and Watson released their paper, there was plenty of talk about how Alan Greenspan, aka the Maestro, had defeated the business cycle. Plenty of irony there to go around for everyone. Last year, Chris Waller and Jonas Crews published a paper titled "Was the Great Moderation Simply on Vacation?" which speculates that the Great Recession of 2007-2009 was a temporary blip and that the Great Moderation has returned. Let's hope they have slightly better timing than Stock and Watson, Greenspan or Bernake.

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Posted on Monday, October 23, 2017 @ 1:46 PM • Post Link Print this post Printer Friendly

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