Over the last 30 years, the Peruvian economy has shown a dramatic decrease in the volatility of its macroeconomic aggregates. Following Primiceri (2005), Benati (2008) and GalÌ and Gambetti (2009), a Bayesian structural vector autoregression with time-varying parameters and variance covariance matrix of the innovations is used to analyse the underlying causes of Peruvian ìGreat Moderationî. The peruvian economy is modelled using real GDP growth, ináation and the rate of growth of M1 (money base). Our main results show: (1) Monetary policy has contributed signiÖcantly to the ìGreat Moderationîby reducing the volatility of its non-systematic component and by changing its reaction function to demand and supply shocks; (2) Structural reforms also contributed to reduce the responsiveness of GDP and ináation to demand and supply shocks (3) During the period of high volatility, supply and policy shocks were the most important determinants of macroeconomic instability.