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Can the Fed Control Real Interest Rates?

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Author Info
Robert J. Shiller

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Abstract

Three hypotheses concerning the controllability of rationally expected real interest rates are examined here. These hypotheses, which are suggested by recent literature, assert in different senses that the stochastic properties of expected real interest rates are independent of the Fed policy rule. We discuss the meaning and implications of the hypotheses, and how they might be tested. Evaluation of the hypotheses is attempted by examination of the Fed's "quasi-controlled experiments," historical changes in policy regimes, Granger-Sims causality tests, Barro unanticipated money regressions, and other methods. Questions as to the relevance of any such methods are discussed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0348.

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Date of creation: May 1979
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Handle: RePEc:nbr:nberwo:0348

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Carlson, John A, 1977. "Short-Term Interest Rates as Predictors of Inflation: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 469-75, June.
  2. Shiller, Robert J & Siegel, Jeremy J, 1977. "The Gibson Paradox and Historical Movements in Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 891-907, October. [Downloadable!] (restricted)
  3. William Poole, 1976. "Rational Expectations in the Macro Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(1976-2), pages 463-514. [Downloadable!]
  4. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April. [Downloadable!] (restricted)
  5. Nelson, Charles R & Schwert, G William, 1977. "Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis That the Real Rate of Interest is Constant," American Economic Review, American Economic Association, vol. 67(3), pages 478-86, June. [Downloadable!] (restricted)
  6. Thomas Sargent, 1971. "Expectations at the Short End of the Yield Curve: An Application of Macaulay's Test," NBER Chapters, in: Essays on Interest Rates, Vol. 2, pages 391-412 National Bureau of Economic Research, Inc. [Downloadable!]
  7. William Poole, 2001. "Expectations," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 1-10. [Downloadable!]
    Other versions:
    • William Poole, 2000. "Expectations," Speech, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. Joines, Douglas, 1977. "Short-Term Interest Rates as Predictors of Inflation: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 476-77, June. [Downloadable!] (restricted)
  9. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June. [Downloadable!] (restricted)
  10. Phelps, Edmund S & Taylor, John B, 1977. "Stabilizing Powers of Monetary Policy under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 163-90, February. [Downloadable!] (restricted)
  11. Sargent, Thomas J, 1976. "The Observational Equivalence of Natural and Unnatural Rate Theories of Macroeconomics," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 631-40, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert B. Litterman & Laurence M. Weiss, 1984. "Money, real interest rates, and output: a reinterpretation of postwar U.S. data," Staff Report 89, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Behzad T. Diba & Seonghwan Oh, 1988. "Have Money-Stock Fluctuations Had a Liquidity Effect on Expected Real Interest Rates," UCLA Economics Working Papers 534, UCLA Department of Economics. [Downloadable!]
  3. Robert B. Barsky & N. Gregory Mankiw & Jeffrey A. Miron & David N. Weil, 1989. "The Worldwide Change in the Behavior of Interest Rates and Prices in 1914," NBER Working Papers 2344, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. N. Gregory Mankiw & Jeffrey A. Miron, 1991. "Should The Fed Smooth Interest Rates? The Case of Seasonal Monetary Policy," NBER Working Papers 3388, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Rasmus Pilegaard & Alain Durre & Snorre Evjen, 2003. "Estimating risk premia in money market rates," Working Paper Series 221, European Central Bank. [Downloadable!]
  6. Karen K. Lewis & Martin D. Evans, 1992. "Do Expected Shifts in Inflation Policy Affect Real Rates?," NBER Working Papers 4134, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. N. Gregory Mankiw & Jeffrey A. Miron & David N. Weil, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," NBER Working Papers 2124, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Martin Feldstein, 1983. "The Fiscal Framework of Monetary Policy," NBER Working Papers 0966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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