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2018•International Economic ReviewOpen access

GREAT MODERATION AND GREAT RECESSION: FROM PLAIN SAILING TO STORMY SEAS?

María Dolores Gadea Rivas, Ana Gómez Loscos, Gabriel Pérez‐Quirós

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Abstract

Abstract Many have argued that the Great Recession of 2008 marks the end of the reduction in output volatility known as the Great Moderation. This article shows that this is not the case through an empirical analysis. Output volatility remains subdued despite the output loss of the Great Recession. This finding has important implications for policymaking because we also find that a lower volatility of output is associated with slower recoveries.

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Abstract Many have argued that the Great Recession of 2008 marks the end of the reduction in output volatility known as the Great Moderation. This article shows that this is not the case through an empirical analysis. Output volatility remains subdued despite the output loss of the Great Recession. This finding has important implications for policymaking because we also find that a lower volatility of output is associated with slower recoveries.

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Available abstract

Abstract Many have argued that the Great Recession of 2008 marks the end of the reduction in output volatility known as the Great Moderation. This article shows that this is not the case through an empirical analysis. Output volatility remains subdued despite the output loss of the Great Recession. This finding has important implications for policymaking because we also find that a lower volatility of output is associated with slower recoveries.

Key concepts: Great Moderation, Recession, Volatility (finance), Economics, Great recession, Moderation, Keynesian economics, Monetary economics

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