America&Apos;S First Great Moderation

52 Pages Posted: 12 Jan 2016 Last revised: 20 Sep 2021

See all articles by Joseph H. Davis

Joseph H. Davis

The Vanguard Group

Marc Weidenmier

Claremont McKenna College - Robert Day School of Economics and Finance; National Bureau of Economic Research (NBER)

Date Written: January 2016

Abstract

We identify America’s First Great Moderation, a recession-free 16-year period from 1841 until 1856, that represents the longest economic expansion in U.S. history. Occurring in the wake of the debt-deleveraging cycle of the late 1830s, this “take-off” period’s high rates of economic growth and relatively-low volatility enabled the U.S. economy to escape downturns despite the absence of a central bank. Using new high frequency data on industrial production, we show that America’s First Great Moderation was primarily driven by a boom in transportation-goods investment, attributable to both the wider adoption of steam railroads and river boats and the high expected returns for massive wooden clipper ships following the discovery of gold in California. We do not find evidence that agriculture (i.e., cotton), domestic textile production, or British economic conditions played any significant role in this moderation. The First Great Moderation ended with a sharp decline in transportation investment and bank credit during the downturn of 1857-8 and the coming American Civil War. Our empirical analyses indicate that the low-volatility states derived for both annual industrial production and monthly stock prices during the First Great Moderation are similar to those estimated for the Second Great Moderation (1984-2007).

Suggested Citation

Davis, Joseph H. and Weidenmier, Marc D., America&Apos;S First Great Moderation (January 2016). NBER Working Paper No. w21856, Available at SSRN: https://ssrn.com/abstract=2713581

Joseph H. Davis (Contact Author)

The Vanguard Group ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Marc D. Weidenmier

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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