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

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  • Nason, James M.
  • Smith, Gregor W.

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.

Suggested Citation

  • Nason, James M. & Smith, Gregor W., 2007. "Great Moderation(s) and U.S. Interest Rates: Unconditional Evidence," Queen's Economics Department Working Papers 273616, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273616
    DOI: 10.22004/ag.econ.273616
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