*  *  *  One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility.
In a recent article, Olivier Blanchard and John Simon (2001) documented that the variability of quarterly growth in real output (as measured by its standard deviation) has declined by half since the mid-1980s, while the variability of quarterly inflation has declined by about two thirds.1 Several writers on the topic have dubbed this remarkable decline in the variability of both output and inflation “the Great Moderation”.