The Great Moderation Lives. Maybe.

One of the puzzles of modern economics is the Great Moderation. This is the fact that economic volatility declined dramatically after the recovery from the 1981-82 recession. In other words, the booms became less boomier and the busts were a lot less bustier.

This led to a lot of theorizing. Hey, maybe the Fed had finally figured the economy out. Well, all these ideas got tossed out the window once the economy went kablooey in 2008.

But here’s a fact you don’t hear much about — the Great Moderation may still be with us. The fact is that since the recovery began three years ago, the variability in quarterly GDP has been very low. In fact, it’s lower than at any point between 1982 and 2007.

There’s no better way to explain this than by using a graph.

Posted by Eddy Elfenbein on November 30th, 2012 at 3:09 pm

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