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Behavior of the real rate of interest over the business cycle

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  • Michael Dotsey
  • Brian Scholl
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    Abstract

    In this paper we document real rate behavior. We do this by looking across a wide variety of constructed real rate series. These series are obtained by using a number of different methodologies for estimating expected inflation, using several different price series, and looking over different time periods. The evidence suggests that over the entire sample period, real rate increases follow output increases and the real rate is positively correlated with contemporaneous output. These results, however, are sensitive to the price series used. That is, we find evidence of specification uncertainty. We also find that real rate behavior varies over different sample periods.

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    File URL: http://www.richmondfed.org/publications/research/working_papers/2000/wp_00-9.cfm
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    File URL: http://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-9.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 00-09.

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    Date of creation: 2000
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    Handle: RePEc:fip:fedrwp:00-09

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    Related research

    Keywords: Interest rates ; Monetary policy ; Business cycles;

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    Cited by:
    1. William T. Gavin & Rachel J. Mandal, 2001. "Forecasting inflation and growth: do private forecasts match those of policymakers?," Review, Federal Reserve Bank of St. Louis, issue May, pages 11-20.
    2. Jens Larsen & Ben May & James Talbot, 2003. "Estimating real interest rates for the United Kingdom," Bank of England working papers 200, Bank of England.

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