The Great Moderation

In: Business and Management

Submitted By dbryant123
Words 1294
Pages 6
The purpose of this analysis is to obtain an improved understanding of “The Great Moderation”, its causes and effects as well as the end of an economic cycle. Additionally, the information gathered can be used to better understand how and why “The Great Moderation” is no longer a valid method of the business cycle. The global economy as well as international markets stand to surge or fall according to the ebb and flow in the market or the business or economic cycles. According to Diego Comin, (2012), the Great Moderation can be defined as “a decline in aggregate volatility”. If a business cycle or quickly engineered spending policies are implemented revolving around political motives we can realize an increase in the margin of error (Hammond, J.D., 2011). The volatility of today’s global markets is growing at an alarming rate, even more so than during the great depression suffered by America in the later 1920’s and early 1930s. Beginning in 2007 the United States began seeing the effects of the end of a business cycle or “The Great Moderation coming to a close. For years, Americans have seen prominent growth cycles with limited down turns or troughs which culminated into a very strong world market. Todd Clark, (2011) explains that, “most recently, the severity of the recession that started in late 2007 has led some observers to conclude the Great Moderation is over.” There were many contributing factors revolving around the 2007 recession in America. For example, the growth of the housing bubble (which lasted from the mid-70s until its collapse in 2007-2008), in the years leading up to the crisis we seen an influx in subprime lending and fraudulent underwriting practices, not to mention the automotive industry bail outs and the list is relatively extensive and is far too complex for this analysis. If we evaluate the “givens” we can get a…...

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