The U.S. economy has experienced a reduction in volatility since the mid 1980's. In this paper we investigate the changes in the response of the economy to an oil price shock and the role of the systematic monetary policy response in accounting for changes in the response of output, prices, inventories, sales and the overall decline in volatility. Our results suggest a smaller and more short-lived response of most macro variables during the Volcker-Greenspan period. It also appears that while

more »

... e systematic monetary policy response has dampened fluctuations in economic activity during the 1970s, it has had virtually no effect after the 'Great Moderation'.