Borio and the Great Moderation

The other day I showed Borio's graph:

Graph #1: The Business Cycle (red) and Borio's Financial Cycle (blue)

and I wrote:

You can see that before 1984 or so, the blue waves of the financial cycle show much less up-and-down variation than the red wiggles of the business cycle. But since that time, the up-and-down variations of the financial cycle have been much larger.

The blue waves are much larger than the red after 1984, and much smaller before. But also, the red waves are much bigger when the blue is small. And the red is smaller when the blue is big. This change in the red line is an example of what has been called the "Great Moderation."

But the change in the blue line is certainly not an exercise in moderation.

A four-part series on Claudio Borio's VOX article started Tuesday