Claremont Colleges Scholarship @ Claremont CMC Senior Theses CMC Student Scholarship 2011 America's First Great Moderation Ryan Shaffer Claremont McKenna College Recommended Citation Shaffer, Ryan, "America's First Great Moderation" (2011). CMC Senior Theses. Paper 280. http://scholarship.claremont.edu/cmc_theses/280 This Open Access Senior Thesis is brought to you by Scholarship@Claremont. It has been accepted for inclusion in this collection by an authorized administrator. For more information, please contact
[email protected]. CLAREMONT McKENNA COLLEGE “AMERICA’S FIRST GREAT MODERATION” SUBMITTED TO PROFESSOR MARC WEIDENMIER AND DEAN GREGORY HESS BY RYAN SHAFFER FOR SENIOR THESIS FALL 2011 NOVEMBER 28, 2011 TABLE OF CONTENTS I. INTRODUCTION . 1 II. LITERATURE REVIEW . 3 III. DATA ANALYSIS . 9 IV. UNDERSTANDING THE FIRST GREAT MODERATION . 13 V. CONCLUSION . 28 DATA APPENDIX . 29 BIBLIOGRAPHY . 38 I. INTRODUCTION Current economic conventional wisdom indicates that the economy of the United States prior to the Civil War was unstable and fraught with recessions. The collapse of the Second Bank of the United States by Andrew Jackson’s hand left the United States without a central bank or lender of last resort, and many state banks produced their own banknotes for currency exchange. These different currencies made it difficult to unite interest rates across state lines, inhibiting interstate commerce, and banking panics in the antebellum period often led to declines in lending and investment that drove recessions. 1 The National Bureau of Economic Research, 2 the premier authority on business cycle dating, identifies five recessions in the two decades prior to the Civil War. By comparison, the period from 1984 to 2007, more commonly referred to as the Great Moderation, was unusually stable and productive.