Reference no: EM131457833

Question: During the early years of the new millennium, many economists described the past few decades as the period of the Great Moderation. For example, N an empirical study by economists Olivier Blanchard and John Simon found that "the variability of quarterly growth in real output (as measured by its standard deviation) had declined by half since the mid-1980s, while the variability of quarterly inflation had declined by about two thirds." N an article titled "Upheavals Show End of Volatility Is Just a Myth" in the Wall Street Journal, dated March 19, 2008, observed that an important measure of stock market volatility, "the Chicago Board Options Exchange's volatility index, had plunged about 75% since October 2002, the end of the latest bear market, through early 2007"; the article also noted that "in the past 25 years, the economy has spent only 16 months in recession, compared with more than 60 months for the previous quarter century."

a. What were the explanations given for the Great Moderation?

b. Does the experience of the US economy during January 2007 to December 2010 still justify characterizing this as a period of Great Moderation?

Report (1) quarterly values for changes in the gross domestic product,

(2) quarterly values for changes in the inflation rate, and

(3) the volatility VIX Index value during this period to support your answer.