The “Great Moderation” refers to a period of relative macroeconomic stability characterized by a decline in the volatility of key economic indicators in the United States from the mid-1980s to the mid-2000s. This period was marked by a reduction in the volatility of inflation, output growth, and employment.

Key features of the Great Moderation include:

1. **Macroeconomic Stability:** The term “Great Moderation” reflects the reduced volatility in economic indicators, particularly inflation and real GDP growth. During this period, the U.S. economy experienced more stable and predictable economic conditions compared to the preceding decades.

2. **Low and Stable Inflation:** One of the central features of the Great Moderation was the decline in inflation volatility. The Federal Reserve, under the leadership of Chairman Paul Volcker in the early 1980s, implemented policies to combat high inflation. These policies, coupled with changes in inflation expectations, contributed to a more stable and low-inflation environment.

3. **Improved Economic Policy:** The era of the Great Moderation is associated with a perception of improved economic policy management. Central banks, including the Federal Reserve, were credited with adopting more effective monetary policy strategies and tools.

4. **Technological Advances:** Advances in information technology and increased globalization were also cited as factors contributing to economic stability. Improved communication and information flow allowed for better decision-making by businesses and policymakers.

5. **Financial Innovation:** The financial sector saw innovations and developments, including increased use of derivatives and financial engineering. Some argued that these innovations contributed to a more resilient financial system.

6. **Globalization and Trade:** Increased globalization, trade liberalization, and interconnectedness of economies were seen as factors contributing to economic stability. The integration of global markets was believed to provide diversification benefits.

However, it’s important to note that the Great Moderation came to an end with the global financial crisis that emerged in 2007-2008. The crisis revealed vulnerabilities in the financial system, leading to a severe economic downturn. The subsequent years were marked by increased volatility, emphasizing the limitations of the earlier perception of enduring stability.

While the term “Great Moderation” was initially coined to describe the U.S. experience, the concept has been discussed in the context of other advanced economies as well. The discussion around the Great Moderation has spurred debates about the sources of economic stability, the role of monetary policy, and the challenges of managing economic risks.