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2. “the Great Moderation Lulled Macroeconomists and Policy Make...

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2. “the Great Moderation Lulled Macroeconomists and Policy Makers Alike in the Belief That We Know How to Conduct Macroeconomic Policy.” Discuss.

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  • June 24, 2013
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The great moderation has been a prominent macroeconomic topic over the past two decades. It has deceptively comforted macroeconomists and policy makers alike about their beliefs in conducting macroeconomic policies. According to Olivier Blanchard, Giovanni Dell’Ariccia, and Paola Mauro (2010), the great moderations was referring to the steady decline in the variability of output and of inflation over the period (mid 1980s to 2007) in most advanced economies. In other words, economic volatility; rate of change in price over a given period (businessdictionary.com), was declined and the business cycle; the recurring and fluctuating levels of economic activity that an economy experiences over a long period of time , in stages of: growth (expansion); peak; recession (contraction); trough (rock bottom) and recovery, had been lengthened. An economic shock, an event that produces a significant change within an economy, despite occurring outside of it, suddenly ended what many economists are debating about as to what was its real cause and which aspect should be highly credited. The origin of the term “the great moderation” was brought to the public by Governor Ben S. Bernanke, however the current aim of this essay is to discuss the topic in multiple aspects, such as; causes and misunderstandings, effects and findings, as well as lessons and implications.

The debate about the real cause of the great depression has not yet been agreed up on even though many economists are of the view that monetary policy change in the late 1980s. In a report by Olivier Blanchard – and company, “There is also some ambiguity as to how much of the decline should be seen as the result of luck, that is, smaller shocks, structural changes, or improved policy.” Others are of the same view that much of the great moderation has a lot to do with good luck and improvement in inventory management (China and India have been classed as such for their rapid productivity growth and trade integration),...