Title: Interpreting the great moderation
First published: 2008
Description: "We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level.  We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences.  The key ingredients are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a decline in household consumption volatility and individual earnings uncertainty.  Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services.  We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility.  Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations.  While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households"--National Bureau of Economic Research web site.
LC classification: HB1