At last week’s St. Louis Federal Reserve Bank economic policy conference, economist Jesús Fernández-Villaverde presented an interesting challenge to conventional Federal Reserve history. Conventional wisdom holds that the Fed chairmen of the 1960s and 1970s, such as Arthur Burns and G. William Miller, let inflation get out of hand, and then Paul Volcker cracked down and Alan Greenspan mostly followed Volcker’s policies. Collectively, Volcker and Greenspan are said to have created the 20-year period of prosperity known as the Great Moderation.

After hearing Fernández-Villaverde tell his story, perhaps we should start talking about the Great Good Fortune instead of the Great Moderation.

Fernández-Villaverde, a University of Pennsylvania economist, and two co-authors attempt to assess both monetary policy and external “shocks” during each Fed chairman’s tenure. After looking at nearly 40 years of data, they conclude that while Volcker truly was tough on inflation, Greenspan was merely lucky.

In other words, the shocks were simply smaller and less volatile while Greenspan was in charge. We had no oil crisis, no imposition of credit controls or other measures that would shock the markets. As Fernández-Villaverde put it during his presentation last week:

Volcker was a different guy, he was a tough guy. Greenspan was not tough, he was lucky.

Later, he added:

We are concluding from this estimate that Greenspan was actually weaker against inflation than Burns and Miller. He was just experiencing lower shocks. … He was a very lucky guy.

The authors also did an interesting counterfactual experiment. They tried to assess, based on the data, how each Fed chairman would have performed under different conditions. If Volcker had remained chairman through the 1990s, for instance, he would have produced lower inflation.  Greenspan’s reputation, though, doesn’t benefit from the hypothetical time-traveling. If he was subject to the shocks of the 1970s, Fernández-Villaverde said,

there is no evidence that he would have been a very successful chairman.

The paper is available here. It’s based on a mathematical model, and the math is complex. It’s too early, by the way, for the model to draw any conclusions about Ben Bernanke. But the history lesson is fascinating, and it leaves one hoping that the Fed will find another Paul Volcker someday soon.