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A choice-theoretic and information-oriented approach to the short-run characteristics of real and nominal interest rates

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  • Umit Erol
  • Erol Balkan

Abstract

The paper adopts a choice-theoretic, information-oriented approach to the issue of stationarity of real interest rates. It is shown that a constant real rate of interest, even for short run and within the context of a simple two-market framework, requires overly demanding assumptions which are unlikely to be satisfied if efficient market hypothesis is explicitly considered. Such a model which indirectly supports the short-run variability of real interest rates in response to random information signals is tested empirically by utilizing multiple time series models for the 1959-87 observation period. The empirical results suggest a favourable interpretation of the model.

Suggested Citation

  • Umit Erol & Erol Balkan, 1995. "A choice-theoretic and information-oriented approach to the short-run characteristics of real and nominal interest rates," Applied Economics Letters, Taylor & Francis Journals, vol. 2(6), pages 191-195.
    • Handle: RePEc:taf:apeclt:v:2:y:1995:i:6:p:191-195
    DOI: 10.1080/135048595357429
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