Great Moderation

The Great Moderation is a period of macroeconomic stability in the United States of America coinciding with the rise of independent central banking beginning from 1980 and continuing to the present day.

Throughout this period, major economic variables such as real GDP growth, industrial production, unemployment, and price levels have become less volatile, while average inflation has fallen and recessions have become less common.

"[8] It was brought to the attention of the wider public by Ben Bernanke (then member and later chairman of the Board of Governors of the Federal Reserve) in a speech at the 2004 meetings of the Eastern Economic Association.

In an American Economic Review paper, Troy Davig and Eric Leeper stated that the Taylor principle is countercyclical in nature and a "very simple rule [that] does a good job of describing Federal Reserve interest-rate decisions".

[5] Researchers at the US Federal Reserve and the European Central Bank have rejected the "good luck" explanation, and attribute it mainly to monetary policies.

[17] Stock and Watson used a four variable vector autoregression model to analyze output volatility and concluded that stability increased due to economic good luck.

Stock and Watson believed that it was pure luck that the economy didn't react violently to the economic shocks during the Great Moderation.

[21] Richard Clarida at PIMCO considered the Great Moderation period to have been roughly between 1987 and 2007, and characterized it as having "predictable policy, low inflation, and modest business cycles".