Changing variances of shocks led to reduced economic volatility in the US.
The study looked at US monetary policy after World War II and found that changing variances of shocks led to less volatility. Smaller Fed policy errors caused lower inflation volatility, while smaller supply and demand shocks led to less output and interest rate volatility. The researchers used a model with an optimal timeless policy, which explained both the Great Acceleration and the Great Moderation periods. Other models with different rules couldn't explain the data as well.