Real Interest Rates, Nominal Shocks, and Real Shocks
AbstractThis paper uses a structural time-series analysis to analyse the properties of ex-ante real interest rates of the five major OECD economies in relation to temporary and permanent shocks to real output. Following Blanchard and Quah (1989) we refer to these innovations as ‘nominal’ and ‘real’ shocks respectively. The relationships of rates to these shocks appear to be qualitatively consistent with predictions of stochastic general equilibrium models of business cycles driven by both real and nominal disturbances. Real and nominal shocks originating in the United States are found to be the most important causes of persistence in ex-ante real interest rates, but of the two, only nominal shocks cause dynamic movements in rates that are coherent across all countries. Further results indicate that the rise in real interest rates experienced by these countries in the early 1980s was mainly due to nominal shocks in all five countries; real shocks played little or no role.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1647.
Date of creation: May 1997
Date of revision:
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Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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