The financial crisis of 2007–2009 caught nearly everyone by surprise, including the vast majority of economists. In fact, in the years leading up to the calamity, many economists used the phrase “The Great Moderation” to characterize the previous two decades, seeing the period as one of exceptional macroeconomic stability. Although Ben Bernanke did not invent the term, he made it famous in a widely celebrated speech in 2004, two years before he became chairman of the Federal Reserve. Highlighting a “substantial decline in macroeconomic volatility” since the mid-1980s, Bernanke suggested that monetary economists and central bankers deserved a good deal of the credit for taming the business cycle. As he put it, “improvements in monetary ...

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