The Real Interest Rate Spread as a Monetary Policy Indicator
AbstractThis paper employs a consumption-based capital asset pricing model to derive the generalised Fisher equation, in order to estimate the natural rate of interest and corresponding real interest rate spread for the US. Analysis reveals not only is the estimated real interest rate spread a useful measure of the degree of looseness/tightness in the Federal Reserve’s monetary policy stance, but also the variable contributes substantially to an understanding of the evolution of US inflation over the period 1960-2005.
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Bibliographic InfoPaper provided by Central Bank of Ireland in its series Research Technical Papers with number 6/RT/06.
Length: 52 pages
Date of creation: Jul 2006
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