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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium by Heylen, Freddy and Van de Kerckhove, Renaat
- The Effects of the Great Recession on Central Bank Doctrine and Practice by Bernanke, Ben S.
- How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation? by Bussiere, Matthieu/ Chudik, Alexander and Mehl, Arnaud
Great Moderation(s) and US Interest Rates: Unconditional Evidence
Citation Information: The B.E. Journal of Macroeconomics. Volume 8, Issue 1, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.1759, November 2008
- Published Online:
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.