Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis
AbstractWe develop a method of measuring ex-ante real interest rate using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex-ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.
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Bibliographic InfoPaper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 2-95.
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- Kandel, Shmuel & Ofer, Aharon R & Sarig, Oded, 1996. " Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis," Journal of Finance, American Finance Association, vol. 51(1), pages 205-25, March.
- Shmuel Kandel & Aharon R. Ofer & Sarig & Oded, . "Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis," Rodney L. White Center for Financial Research Working Papers 02-95, Wharton School Rodney L. White Center for Financial Research.
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