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I am reading the lecture note here by Simon Gilchrist on equity premium puzzle.

The risk free rate is not very volatile: σ(R) = 2% per year but is persistent (ρ = 0.6 in annual data) leading to medium-run variation.

Can someone please provide a good intuitive explanation of how low volatility and medium persistence lead to medium-run variation.

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From one perspective, the risk free rate is not very volatile, so it won't fluctuate a lot. But in the other hand, it is quite persistent such that it means that every small variation will impact consistently future forecasts.

If we considered only the first point, the risk free rate would be expected to be small-run variation. But as the second point alleviate the first, it is more likely to run with a medium variation.

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