Great Moderation

The Great Moderation is a period of macroeconomic stability in the United States of America coinciding with the rise of central bank independence beginning with the Volcker shock in 1980 and continuing to the present day. It is characterized by generally milder business cycle fluctuations in developed nations, compared with decades before. Throughout this period, major economic variables such as real GDP growth, industrial production, unemployment, and price levels have become less volatile, while average inflation has fallen and recessions have become less common.

The Great Moderation is typically attributed to the adoption of standards for macroeconomic targeting such as the Taylor rule and inflation targeting. However, some economists argue technological shifts also played a role.

The term was coined in 2002 by James H. Stock and Mark Watson to describe the observed reduction in business cycle volatility. There is some debate as to whether the Great Moderation ended with the 2008 financial crisis and the Great Recession, or if it continued beyond this date, with the crisis being an anomaly.