We need values for the parameters [alpha] and [beta] in order to predict the effect of moderations.
These findings mean that the two moderations in consumption-growth volatility probably did not contribute to changes in average interest rates.
framework in which to investigate the likely impact on interest rates (or, strictly speaking, average bond prices) of (a) the 1946 and 1984 moderations in inflation and, later, (b) shifts in the mean of inflation associated with the 1969-1983 period.
These findings do not match up with the timing in tables 1 and 2, where there are moderations in consumption growth and inflation in 1945 and 1984 and a drop in mean inflation in 1984.
Table 6 translates the numbers from table 5 into predicted and actual changes in the average interest rate at the dates of the two moderations.
But since the level of [beta] does not affect the model's prediction for changes in the mean interest rate at moderations, we proceed to document the predictions.
Finally, our central result that changes in the mean of the inflation rate mattered more than inflation moderations is in no way rigged into the setup of the approximate asset pricing equation (7) used to obtain the predictions.
Historically, the inflation moderations simply were not large enough (nor the mean small enough) for this to have happened.
But we next show that engaging these preferences do not affect our results about moderations and interest rates.
However, great moderations are not described in terms of changes in the persistence properties of the reference level of consumption, which is a feature of these external-habit preferences.
That also tells us whether controlling for the market return leads to a finding that consumption growth moderations matters for average interest rates.
The information from the moderations does not suggest a low-frequency or cross-regime correlation between the bond return and the stock-market return that would identify [?