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The Great Moderation – Dead or Alive? Written by Diego Comin in the Global Economic Environment

By WWTD241977 Oct 15, 2012 484 Words
The Great Moderation – Dead or Alive?
Written by Diego Comin in the Global Economic Environment
In today’s society, many people do not know about or understand the Great Moderation. In this assignment, hopefully some people will gain more knowledge and improve his/her understanding on this economic matter. The case study that will be discussed is The Great Moderation – Dead or Alive, by Diego Comin, Harvard Business School/Global Economic Environment. In this paper, four main points will be discussed about the Great Moderation, for instance; what is the Great Moderation, the key macroeconomic facts of Great Moderation, the key microeconomic facts and the main factors responsible for the Great Moderation?

First, what is the Great Moderation? The Great Moderation is, “A period in which the economy experiences a decreasing trend in volatility. The decrease in volatility is believed to be caused by structural changes in the economy and economic policies. During this period, economic variables such as GDP, inflation and production reduce in volatility,” (business dictionary.com) According to Diego Comin, “On February 20, 2004, Ben Bernanke, the chairman of the Federal Reserve, reflected on a trend which decline the macroeconomic volatility, in which the stability was very significant and pervasive for both developing and developed countries. The quarterly growth real out decline by half since the mid-1990’s in which the Great Depression was labeled,” (Comin, pg. 17).

Therefore, the key facts of macroeconomic of the Great Moderation involves everyone in the world and the reason why is because it involves the United States along with other countries, “The higher stability of the economy has affected other variables in addition to GDP. The Great Moderation is not only a U.S. phenomenon, both developed and developing countries,” (Comin, pg. 18).

Furthermore, the key facts of microeconomics of the Great Moderation, such as; “One of the most striking facts about the evolution of volatility in the U.S. is that while the aggregate economy has become more stable, on average, the profits, sales and employment of individual public-trade companies have become more volatile,” (Comin, pg. 18).

Finally, the main factors responsible for the Great Moderation would be, “the sectoral composition, globalization, inventory management, and fiscal policy, demographics and the speed of technology diffusion,” (Comin, pg. 20). In my opinion, I also think structure change in the economy is also responsible for the Great Moderation.

In conclusion, the Great Moderation case study was very interesting and hopefully this will help people to understand the Great Moderation a little better. In my opinion, I am glad this case study was chosen for the assignment because it helped me out a lot and now I have a better understanding of the Great Moderation.

References:
The Great Moderation by Comin, Diego, Global Economic Environment (0) (VitalSourceBookshelf), Retrieved from http://online.vitalsource.com/books/9781121408524/page17-32

Business Dictionary, http://www.businessdictionary.com/definition/great-moderation.html#ixzz1v1kn44fa

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