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Great Moderation(s) and U.S. Interest Rates: Unconditional Evidence

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Author Info
James M. Nason () (Federal Reserve Bank of Atlanta)
Gregor W. Smith () (Queen's University)

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Abstract

The US economy experienced a Great Moderation sometime in the mid-1980s -- a fall in the volatility of output growth -- at the same time as a fall in both the volatility of inflation and the average rate of inflation. We put this moderation in historical perspective by comparing it to the post-WWII moderation. According to theory, the statistical moments -- both real and nominal -- that shift during these moderations in turn influence interest rates. We examine the predictions for shifts in the unconditional average of US interest rates. A central finding is that such shifts probably were due to changes in average inflation rather than to those in the variances of inflation and consumption growth.

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File URL: http://www.econ.queensu.ca/working_papers/papers/qed_wp_1140.pdf
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File Function: First version 2007
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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1140.

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Length: 34 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:qed:wpaper:1140

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Related research
Keywords: great moderation asset pricing

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
N12 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - U.S.; Canada: 1913-

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References listed on IDEAS
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