The name is absent

1 Introduction

Several authors have identified a break in output growth volatility, in the
US, around the mid-1980s — see, for example, (Kim and Nelson 1999) and
(McConnell and Perez-Quiros 2000). According to (Stock and Watson 2002)
the standard deviation of the growth rate of GDP was one-third less during
1984 to 2002 than it was during 1960 to 1983. The decline in the volatility
of inflation and real GDP, in the last two decades, in the US and in other
industrialised countries, has been dubbed the Great Moderation or the Long
Boom. According to (Taylor 2007), this may have been the most important
macroeconomic event in the last half century. Lower volatility of output in
the post-1984 period is associated with less frequent and less severe recessions:
since 1984, the National Bureau of Economic Research identified only two
recessions — one in 1990 and the other in 2001 — which were among the
mildest and shortest recessions since the Second World War, with duration
from peak to trough of eight months each.

These changes in the business cycle have raised the question of what has
been the role of the Federal Reserve in this new regime of the US economy.
Although structural changes in the economy and good luck concerning the
shocks that hit the economy during that period had certainly a role — see, for
example, (Stock and Watson 2002) and (McConnell and Perez-Quiros 2000)
—, it has been argued that improvements in monetary policy were crucial in
generating a lower inflation and a more stable output — see, for example,
(Bernanke 2004) and (Clarida, Gali, and Gertler 2000). Among the changes
in monetary policymaking is the apparent adoption of the so-called Taylor
principle, which implies a response of the interest rate policy instrument to
changes in inflation with a coefficient greater than one. In fact, a more aggressive
reaction of the interest rate to inflation and to the output gap is an important
difference between the period of the Great Moderation and the previous period

<<   1   2   3   4   5   6   >>

More intriguing information