Definition§
The Great Moderation refers to a period in U.S. history from the mid-1980s until 2007 characterized by a marked reduction in macroeconomic volatility, featuring stable economic growth and low inflation rates. Standard deviation metrics during this time indicated a significant decrease, with the overall standard deviation dropping by about half and inflation’s standard deviation declining by two-thirds.
| Great Moderation | Economic Volatility |
|---|---|
| Low inflation and steady growth | High inflation and erratic growth |
| Seen as beneficial for the economy | Often causes uncertainty and instability |
Example§
During the Great Moderation, it was not uncommon for policymakers and economists to celebrate consistent GDP growth like it was the new iPhone launch. However, much like every new gadget, some surprises were lurking, and in 2007—surprise!—the financial crisis hit like a toddler throwing a tantrum in a toy store.
Related Terms§
- Inflation: The rate at which general prices for goods and services rise, eroding purchasing power. Think of it as the economy’s attempt to sneak extra calories into your diet without telling you.
- Economic Policies: Strategies implemented by governments or institutions to influence a nation’s economy. Often depicted as the “magic spells” used by policymakers to keep chaos at bay (or invite it in).
Humorous Insights & Fun Facts§
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Former Fed Chair Ben Bernanke once called this period the “good old days,” but some economists believe he was just auditioning for a sitcom featuring a friendly but oblivious uncle who always believes he can smoothly solve problems with luck and policy magic.
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Fact: The Great Moderation may have lulled economists into a false sense of stability, much like the calm before an unexpected hurricane…
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“The economy is like a dog on a leash; every once in a while, it sees a squirrel (i.e., financial crisis) and takes off!” – Not Ben Bernanke.
Frequently Asked Questions§
Q: Who coined the term Great Moderation?
A: The term was popularized by economists including Ben Bernanke during speeches and academic discussions in the early 2000s.
Q: What caused the Great Moderation?
A: Three potential causes are often cited: structural change in the economy (like tech advancements), better economic policies (thanks to all those economists), and sheer luck (which some say is more like chance).
Q: How did the Great Moderation end?
A: Ironically, it ended with the financial crisis of 2007, which many believe was the economy’s version of a dramatic plot twist!
Further Reading§
- “The Great Moderation: a new view of the economic cycle” by Ben Bernanke
- “Macroeconomic Volatility, Financial Markets and Economic Growth” by Various Authors
- Online resources like EconLib and the Federal Reserve Economic Data (FRED) can provide insights on volatility measures and economic trends.
Test Your Knowledge: The Great Moderation Challenge§
Thank you for joining this hilarious exploration of The Great Moderation! Remember, the economy is like a box of chocolates—except it sometimes includes a surprise crisis! 🍫💔
