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The Real Interest Rate: A Multi-Country Empirical Study

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Frederic S. Mishkin

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Abstract

How real interest rates behave over time is critical to our understanding of many macroeconomic issues, and much recent research has pursued this question. Very little of the research, however, has focused on real interest rates outside the United States. This paper is an empirical exploration of real interest rate movements in seven OECD countries from 1967-II to 1979-II. Further research is needed on real rates in other countries for several reasons. Not only are measures of foreign real rates of interest in their ownright, but extending an analysis of real rates to other countries also has the following additional benefits: it can generate more powerful statistical tests of propositions previously tested on U.S. data and yield information on whether results found for the U.S. hold up in other countries.This study pursues several questions that have arisen naturally from this earlier work. Is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries? Does the real rate decline with increased inflation and money growth in other countries besides the United States? How reliable is the Fisher effect, in which nominal interestrates reflect changes in expected inflation? Are movements in nominal interest rates a reliable indicator of movements in real rates? What kind of variationsin real interest rates are there in different countries? Have real rates declined from the '60s to the '70s for other countries besides the U.S.?

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1047.

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Date of creation: Apr 1985
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Handle: RePEc:nbr:nberwo:1047

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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. Cumby, Robert E & Obstfeld, Maurice, 1981. "A Note on Exchange-Rate Expectations and Nominal Interest Differentials: A Test of the Fisher Hypothesis," Journal of Finance, American Finance Association, vol. 36(3), pages 697-703, June. [Downloadable!] (restricted)
  2. Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-56, November. [Downloadable!] (restricted)
  3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May. [Downloadable!] (restricted)
  4. Lahiri, Kajal, 1976. "Inflationary Expectations: Their Formation and Interest Rate Effects," American Economic Review, American Economic Association, vol. 66(1), pages 124-31, March. [Downloadable!] (restricted)
  5. Gibson, William E, 1972. "Interest Rates and Inflationary Expectations: New Evidence," American Economic Review, American Economic Association, vol. 62(5), pages 854-65, December. [Downloadable!] (restricted)
  6. Garbade, Kenneth & Wachtel, Paul, 1978. "Time variation in the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 755-765, November. [Downloadable!] (restricted)
  7. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October. [Downloadable!] (restricted)
  8. Hess, Patrick J. & Bicksler, James L., 1975. "Capital asset prices versus time series models as predictors of inflation: The expected real rate of interest and market efficiency," Journal of Financial Economics, Elsevier, vol. 2(4), pages 341-360, December. [Downloadable!] (restricted)
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Cited by:
(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. Frederic S. Mishkin, 1989. "Understanding Real Interest Rates," NBER Working Papers 2691, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Frederic S. Mishkin & John Simon, 1997. "An Empirical Examination of the Fisher Effect in Australia," NBER Working Papers 5080, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Juan Carlos Echeverry & Marcela Eslava, . "Notas sobre la Tasa de Interés y la Inflación en Colombia," Borradores de Economia 078, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  5. Noor A. Ghazali & Shamshubariah Ramlee, 2003. "A long memory test of the long-run Fisher effect in the G7 countries," Applied Financial Economics, Taylor and Francis Journals, vol. 13(10), pages 763-769, October. [Downloadable!] (restricted)
  6. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 609-642. [Downloadable!]
    Other versions:
  7. Reuven Glick, 1987. "Interest rate linkages in the Pacific Basin," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 31-42. [Downloadable!]
  8. Philippe Jorion & Frederic Mishkin, 1991. "A Multi-Country Comparison of Term Structure Forecasts at Long Horizons," NBER Working Papers 3574, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Luis Fernando melo V. & Martha Misas A., . "Modelos Estructurales de Inflación en Colombia: Estimación a traves de Minimos Cuadrados Flexibles," Borradores de Economia 282, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  10. Heejoon Kang & Michele Fratianni, 1993. "International equality of stock market returns," Open Economies Review, Springer, vol. 4(4), pages 381-401, December. [Downloadable!] (restricted)
  11. Luca Deidda & Fabio Cerina, 2002. "Do we need more time for leisure?," Working Paper CRENoS 200203, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
  12. Vuyyuri, S., 2004. "Linkages of Indian Interest Rates with US and Japanese Rates," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(2). [Downloadable!]
  13. Jens Weidmann, 1997. "New Hope for the Fisher Effect? A Re-Examination Using Threshold Cointegration," Macroeconomics 9705005, EconWPA. [Downloadable!]
  14. Marco Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," Working Paper 98-6, Federal Reserve Bank of Atlanta. [Downloadable!]
  15. B. Douglas Bernheim & John B. Shoven, 1988. "Fiscalité et coût du capital: une comparaison internationale," Annales d'Economie et de Statistique, ADRES, issue 11, pages 05, Juillet-S. [Downloadable!]
  16. Norbert Janssen, . "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England. [Downloadable!]
  17. Michael G. Arghyrou & Andros Gregoriou & Alexandros Kontonikas, 2007. "Do real interest rates converge? Evidence from the European Union," Working Papers 2007_21, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  18. Keshab Shrestha & Kok Tan, 2005. "Real Interest Rate Parity: Long-Run and Short-Run Analysis Using Wavelets," Review of Quantitative Finance and Accounting, Springer, vol. 25(2), pages 139-157, September. [Downloadable!] (restricted)
  19. Michael Artis & Massimiliano Marcellino, . "Fiscal Solvency and Fiscal Forecasting in Europe," Working Papers 142, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  20. Leonardo Villar & Hernán Rincón, . "The Colombian Economy in the nineties: Capital Flows and Foreign Exchange Regimes," Borradores de Economia 149, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  21. Anthony E. Myatt & Gregory Young, 1986. "Interest Rates and Inflation: Uncertainty Cushions, Threshold and "Patman" Effects," Eastern Economic Journal, Eastern Economic Association, vol. 12(2), pages 103-114, Apr-Jun. [Downloadable!]
  22. Joseph E. Gagnon & Mark D. Unferth, 1993. "Is there a world real interest rate?," International Finance Discussion Papers 454, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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