The Great Moderation in Historical Perspective. Is it that Great?

42 Pages Posted: 2 Oct 2015

Multiple version iconThere are 2 versions of this paper

Date Written: October 2, 2015


The Great Moderation (GM) is widely documented in the literature as one of the most important changes in the US business cycle. All the papers that analyze it use post-WWII data. In this paper, we set the GM for the first time against a long-dated historical backdrop, stretching back a century and a half, which includes secular changes in the economic structure and a substantial reduction of output volatility. We find two robust structural breaks in volatility at the end of WWII and in the mid-eighties, showing that the GM still holds in the longer perspective. Furthermore, we show that GM volatility reduction is only linked to expansion features. We also date the US business cycle in the long run, finding that volatility plays a primary role in the definition of the business cycle, which has important consequences for econometricians and forecasters.

Keywords: business cycle, volatility, structural breaks, secular changes

JEL Classification: C22, E32

Suggested Citation

Gadea Rivas, Maria Dolores and Gómez-Loscos, Ana and Perez-Quiros, Gabriel, The Great Moderation in Historical Perspective. Is it that Great? (October 2, 2015). Banco de Espana Working Paper No. 1527, Available at SSRN: or

Maria Dolores Gadea Rivas (Contact Author)

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005

Ana Gómez-Loscos

Banco de España ( email )

Alcala 50
Madrid 28014

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics