The decline in volatility of US GDP growth

The decline in volatility of US Gross Domestic Product (GDP) growth is a well-known stylized fact of post WWII macroeconomic data. Economists call this observation the Great Moderation. This article contributes to the discussion whether the drop in GDP volatility was a one-time break or a trend decrease (Blanchard and Simon, 2001; Fang and Miller, 2007). We provide evidence for a nonlinear time trend in the volatility of GDP growth and give support for the hypothesis that the 1970s were special in the sense of Blanchard and Simon (2001).