@techreport{NBERw14048,
 title = "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels",
 author = "Steven J. Davis and James A. Kahn",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "14048",
 year = "2008",
 month = "May",
 URL = "http://www.nber.org/papers/w14048",
 abstract = {We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level.  We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences.   The key ingredients are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a decline in household consumption volatility and individual earnings uncertainty.  Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services.  We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility.  Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations.  While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.},
}