A BEJM Contributions article.

Abstract

The Great Moderation refers to the fall in US output growth volatility in the mid-1980s. At the same time, the US experienced a moderation in inflation and lower average inflation. Asset pricing theory predicts that moderations -- real or nominal -- influence interest rates. Using annual data since 1890, we find that an earlier 1946 moderation in output and consumption growth was comparable to that of 1984. To assess the impact of these moderations, we also isolate the 1969-1983 Great Inflation using quarterly data since 1947. We examine the quantitative predictions of a consumption-based asset pricing model for shifts in the unconditional average of US interest rates across these time periods. A central finding is that such shifts probably were related to changes in average inflation rather than to moderations in inflation and consumption growth.

Submitted: May 15, 2008 · Accepted: October 27, 2008 · Published: November 27, 2008

Recommended Citation

Nason, James M. and Smith, Gregor W. (2008) "Great Moderation(s) and US Interest Rates: Unconditional Evidence," The B.E. Journal of Macroeconomics: Vol. 8 : Iss. 1 (Contributions), Article 30.
DOI: 10.2202/1935-1690.1759
Available at: http://www.bepress.com/bejm/vol8/iss1/art30