Yesterday I said
When economists talk about "the Great Moderation" they refer to a time when growth was more consistent. Not necessarily high or low. Just not a lot of variability. However, if the reduction in variability occurs primarily because the "high points" of growth are lower than in the past, then the low volatility of the Great Moderation will primarily be the result of consistently low growth.
I was thinking something like this, from VOX:
the nature of the volatility reduction associated with the Great Moderation is linked to the features of expansion phases, in particular, to the absence of high growth recoveries.
But I made a graph, and now I don't know. I broke Real GDP per Capita into three periods on the graph:
1. Before the Great Moderation (1948-1984)
2. The Great Moderation (1985-2007)
3. After the Great Moderation (2010-2017)
Quarterly data. I left out the crisis years 2008-09 as not relevant to the topic of volatility reduction.
For each period I figured the average rate of growth. This allowed me to split the data into two groups for each period: values above the average, and values below the average. Then I got averages for those two groups. I put all three average values on a graph, for all three periods. The period averages are shown in blue. The averages of "above average" values are shown in red. And the averages of "below average" values are shown in green:
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| Graph #1: Economic Performance Before, During, and After the Great Moderation |
More noticeable, however, are the changes in the red (above average) and green (below average) period averages. The "good" performance during the Great Moderation definitely indicates "the absence of high growth recoveries". But the "bad" performance definitely indicates an absence of severe recessions as well.
The "bleedin obvious" I guess.
Nice conclusion, Art. And all you had to do was leave out the severe 2008-09 recession.
// The Excel file
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