DP10092 The Two Greatest. Great Recession vs. Great Moderation

Author(s): Maria Dolores Gadea Rivas, Ana Gómez Loscos, Gabriel Pérez-Quirós
Publication Date: August 2014
Keyword(s): business cycle, Markov Switching models, recoveries, volatility
JEL(s): C22, E32
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10092

The collapse of the global economy in 2008, following the outbreak of the financial crisis, and the ensuing economic developments of the so-called Great Recession (GR) led many economists to suggest that the Great Moderation (GM) had, indeed, come to an end. This paper offers evidence that the decrease in output volatility still remains in force despite the GR and would do so even if the GR continues to extended horizons. This finding has important implications not only for academics, concerning the implementation of theoretical and empirical techniques, but also for policymakers, regarding the understanding of the pattern of recovery from the current and future recessions