Great moderations and U.S. interest rates: unconditional evidence

James Nason and Gregor Smith

No 2008-01, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The Great Moderation refers to the fall in U.S. output growth volatility in the mid-1980s. At the same time, the United States experienced a moderation in inflation and lower average inflation. Using annual data since 1890, we find that an earlier, 1946 moderation in output and consumption growth was comparable to that of 1984. Using quarterly data since 1947, we also isolate the 1969?83 Great Inflation to refine the asset pricing implications of the moderations. Asset pricing theory predicts that moderations?real or nominal?influence interest rates. We examine the quantitative predictions of a consumption-based asset pricing model for shifts in the unconditional average of U.S. interest rates. A central finding is that such shifts probably were related to changes in average inflation rather than to moderations in inflation and consumption growth.

Keywords: Interest rates; Inflation (Finance) (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Great Moderation(s) and US Interest Rates: Unconditional Evidence (2008)
Working Paper: Great Moderation(s) And U.s. Interest Rates: Unconditional Evidence (2007)
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