Why Has the Economy Become Less Volatile? (CRS Report for Congress)
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| Release Date |
Revised Aug. 1, 2008 |
| Report Number |
RL33959 |
| Report Type |
Report |
| Authors |
Marc Labonte, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Congress is concerned with the health of the U.S. economy, which affects theliving standards of all Americans. The 2001 recession was unusually mild and briefby historical standards. At 120 months, the expansion that preceded it had been thelongest in U.S. history. Is this a coincidence? A body of research concludes that itis not. Since 1984, the volatility of economic growth has fallen by more than half.Before 1984, the fluctuations in quarterly growth rates were much more extremefrom one quarter to the next. After 1984, the changes from quarter to quarter havebecome much smoother.There are three competing explanations for what economists have called the"great moderation." One theory is that structural changes have made the economyless volatile. Changes in the structure of the economy include a smallermanufacturing sector, better inventory management, financial innovations, andderegulation. Most economists have concluded that the shift in production acrossdifferent sectors since 1984 has not been large enough to account for most of thegreat moderation.
