Prior to the deterioration of the crisis in October 2008, our economies experienced two decades of significantly reduced macroeconomic volatility. A number of empirical studies documented a significant decline in the variability of both economic growth and inflation in almost all major industrialised economies.
Most of the debate among monetary economists focused at the time on the predominant source of “the Great Moderation” among three main candidates: (1) better macroeconomic policies, (2) structural changes in the economies, and (3) less disruptive distributions of shocks (“good luck”).