• Federal Reserve Bank of San Francisco

ABSTRACT:

Over the last 25 years, the U.S. economy has become much less volatile; that is, the swings from boom to bust have been greatly reduced, as has the pain typically associated with such cycles. As Figure 1 illustrates, the volatility of GDP growth has fallen by more than half since 1985. Many observers refer to this phenomenon as the "Great Moderation." To what can we credit this improved environment? Researchers have uncovered several potential drivers, including improved technology (especially related to inventory and supply chain management), better monetary policy, and simple good luck, but to date they have found little consensus on which factor is most important. Also in dispute is the extent to which the decline in aggregate volatility has been mirrored in the microeconomic data on income and employment. In other words, have households and businesses also experienced a decline in volatility? The seven papers presented at the Center for the Study of Innovation and Productivity's conference on "Recent Trends in Economic Volatility" investigate these questions. Although the debate is not over, the papers have moved the research forward and highlighted key questions for future work.