Changes in Business Cycles: Evidence and Explanations

This paper shows that the volatility of annual real macroeconomic indicators for the United States and the average severity of recessions have declined only slightly between the pre-World War I and post-World War II eras. Recessions have, however, become somewhat less frequent and more uniform. It argues that the advent of macroeconomic policy after World War II can account for both the observed continuity and change. Countercyclical monetary policy and automatic stabilizers have prolonged postwar expansions and prevented severe depressions. At the same time, policy-induced booms and recessions have led to continued volatility of the postwar economy.