For decades, relative global stability, sound economic-policy management, and the steady expansion of trade to and from emerging markets combined to keep costs down. But now all these conditions have been overturned, and the world is settling into a dangerous and destabilizing new regime.
NEW YORK – The world economy is undergoing a radical regime shift. The decades-long Great Moderation is over.
Coming after the stagflation (high inflation and severe recessions) of the 1970s and early 1980s, the Great Moderation was characterized by low inflation in advanced economies; relatively stable and robust economic growth, with short and shallow recessions; low and falling bond yields (and thus positive returns on bonds), owing to the secular fall in inflation; and sharply rising values of risky assets such as US and global equities.
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