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

  • James M. Nason

    ()

    (Federal Reserve Bank of Atlanta)

  • Gregor W. Smith

    ()

    (Queen's University)

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://qed.econ.queensu.ca/working_papers/papers/qed_wp_1140.pdf
File Function: First version 2007
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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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