The Coffee Crisis

Topics: Business cycle, Great Depression, Late-2000s recession Pages: 6 (1618 words) Published: May 19, 2012
“The Great Moderation, Dead or Alive?” by Diego Comin:

An Analysis

Ann Beecham

MBA 6008 Global Economics

3660 South Ridge Circle

Titusville, Florida 32796

(321) 745-7260

Dr. Michael Polakoff


In 2011, Diego Comin, Associate Professor of Business Administration at Harvard Business School, revised his 2009 case study on the Great Moderation (reproduced by permission for Capella University, 2011). The case explores whether or not the Great Moderation, defined by as “the period of decreased macroeconomic volatility experienced in the United States since the 1980’s [during which] the standard deviation of quarterly real GDP declined by half, and the standard deviation of inflation declined by two-thirds (para. 1)” is still in effect. This paper will use evidence from research in a draft by Pancrazi and Vukotic (2011) that proposes “macroeconomic variables in the last thirty years have not only experienced a reduction in their overall volatility, but also an increase in their persistence (p.2).” The 2011 research paper also purports that “by using a New-Keynesian macroeconomic model...the responsiveness of output variance to changes in the monetary policy decreases with an increase in the persistence of technology (p.2).” The result, according to Pancrazi and Vukotic, is an “overestimate” of the monetary influence and authority to “smooth out the real economic dynamics (p.2).”

The Great Moderation and the The Great Recession.

Comin, in “The Great Moderation, Dead or Alive?” (Capella, 2011), quotes Ben Bernanke, Chairman of the Federal Reserve: "reduced macroeconomic volatility has numerous benefits. Lower volatility of inflation improves market functioning, makes economic planning easier, and reduces the resources devoted to hedging inflation risks. Lower volatility of output tends to imply more stable employment and a reduction in the extent of economic uncertainty confronting households and firms. The reduction in the volatility of output is also closely associated with the fact that recessions have become less frequent and less severe (p.17).” Comin points out that these conditions existed until the Great Recession of 2007 when the U.S. and other countries experienced the longest period of recession and “ the largest GDP contraction in the U.S. since the Great Depression (p.17)." In “Overlooking the Great Moderation, Consequences for the Monetary Policy” (2011), the researchers hypothesize that the “Great Moderation might have been fertile ground for the recent recession (p.3), in that technology caused an “increased persistence in the macroeconomic variables (p.4).”

Macroeconomic Observations.

To summarize Comin’s (2011) account of macroeconomic activity in the U.S between 1930 and 2010, when observing the GDP during this period, he says, “it is clear that since around 1984 it has been harder to observe large deviations from the average growth rate (p.17).” When examining other macroeconomic variables, Comin says that hours worked, consumption, investment, labor productivity, and total factor productivity (TFP), have, for the most part, “experienced stabilization by roughly the same magnitude, [where] the stock market has not stabilized significantly. If anything, it has become more volatile over the last few decades (p. 18).”

Pancrazi and Vukotic focus their research on “studying the behavior of the total factor productivity (TFP) before and after the Great Moderation (p.4)…[by] using a basic New-Keynesian model featuring imperfect completion and price stickiness, [to ascertain] whether a change in the persistence of TFP affects the responsiveness of the real variables to the monetary policy (p.6).” Their observations include an examination of the stability of TFP and an assessment that “a higher

Microeconomic impact of the coffee...

References: Capella University. (Eds.). (2011). MBA6008: Global Economic Environment. New York, NY: McGraw-Hill.
Lines, T., & Tickell, S. (2003, May 1). Walk the Talk, Oxfam International Briefing Paper, May, 2003. Oxfam International | Working together to find lasting solutions to poverty and injustice. Retrieved May 5, 2012, from
Osorio, N. (2002). Documents/Global Crisis. International Coffee Organization. Retrieved May 4, 2012, from
Osorio, N. (2003). Documents/G-8. International Coffee Organization. Retrieved May 4, 2012, from
Osorio, N. (2004). Documents/UNCTAD. International Coffee Organization. Retrieved May 4, 2012, from
Prince, M. (2003, December 3). CoffeeGeek - Coffee Crisis:TechnoServe Releases Fact-Based Industry Analysis. CoffeeGeek - News, Reviews, Opinion and Community for Coffee and Espresso. Retrieved May 5, 2012, from
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