Explain how discretionary monetary policy may have brought about the end of the Great Moderation and ushered in the Great Recession

What will be an ideal response?

The Great Moderation ended when the collapse of the housing bubble led to the financial crisis and the Great Recession. The federal funds rate was far below the rate suggested by the Taylor rule at the exact time that the housing market bubble was developing in the United States, and many countries experienced housing bubbles at the same time, and the extent of those bubbles is related to how far central banks in those countries deviated from well-established rules like the Taylor rule. Evidence suggests that discretionary monetary policy during 2001-2006 led to a housing bubble and helped contribute to the financial crisis and the end of the Great Moderation.