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An Analysis of the Real Interest Rate Under Regime Shifts

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  • René Garcia
  • Pierre Perron

Abstract

This study considers the time series behavior of the U.S. real interest rate from 1961 to 1986. We provide a statistical characterization of the series using the methodology of Hamilton (1989), by allowing three possible regimes affecting both the mean and variance of the series. The results suggest that the ex-post real interest rate is essentially random around a mean that is different for the periods 1961-1973, 1973-1980 and 1980-1986. The variance of the process is also different in these episodes being higher in both the 1973-1980 and 1980-1986 sub-periods. The inflation rate series is also analyzed using a three regime framework and again our results show interesting patterns with shifts in both mean and variance. Various model selection tests are run and both an ex-ante real interest rate and an expected inflation series are constructed. Finally, we make clear how our results can explain some recent findings in the literature. Cette étude s'intéresse au comportement des séries du taux d'intérêt réel américain de 1961 à 1986. En utilisant la méthodologie d'Hamilton (1989), la modélisation statistique des séries se fait en postulant trois régimes possibles affectant la moyenne et la variance de celles-ci. Les résultats suggèrent que le taux d'intérêt réel ex-post est essentiellement un processus non corrélé et centré sur une moyenne qui diffère sur les périodes 1961-1973, 1973-1980 et 1980-1986. La variance du processus est aussi différente pour chacune de ces périodes, étant plus élevée dans les sous périodes 1973-1980 et 1980-1986. Les séries du taux d'inflation sont aussi analysées à la lumière de ce modèle à trois régimes et les résultats traduisent encore un comportement intéressant de celles-ci, avec des changements dans la moyenne et la variance. Différents tests de spécification sont utilisés et des séries, à la fois du taux d'intérêt réel ex-ante et de l'inflation anticipée, sont construites. Enfin, il est montré comment ces résultats peuvent expliquer certaines conclusion récentes de la littérature.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-05.

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Date of creation: 01 Feb 1995
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Handle: RePEc:cir:cirwor:95s-05

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Keywords: Nonstationary series; Inflation rate; Unit root; Structural change; Séries non-stationnaires ; Taux d'inflation ; Racine unitaire ; Changement structurel;

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