UPS AND UPS AND UPS—THE GREAT MODERATION. Back in the sixties, there was a minority of economists who argued that it was possible for policy makers to keep the economy on a steady path. The seventies were a time of inflation and there was a recession at the beginning of the eighties. And then came what has been called the Great Moderation, which wikipedia defines as a “period from the early 1980s (some economists specifically identify the 3rd quarter of 1983 as the starting point) during which major economic variables such as GDP, industrial production, monthly payroll employment and the unemployment rate were far less volatile than earlier in history.” Ben Bernanke, the Chairman of the Federal Reserve, gave a speech in 2004 which discussed three possible explanations of the Great Moderation: structural change in the economy, better monetary policy, and good luck (the good luck being that there were fewer and smaller shocks to the economy). The Great Moderation ended some time in the last two years, but it demonstrated that an economy could be kept on a steady path for quite a long time.

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