Advanced Search
MyIDEAS: Login

World Real Interest Rates

Contents:

Author Info

  • BARRO, R.J.
  • MARTIN, X.S.

Abstract

We think of the expected real interest rate for ten OECD countries (our counterpart of the world economy) as determined by the equation of aggregate investment demand to aggregate desired saving. Stock-market returns isolate shifts to investment demand, and changes in oil prices, monetary growth, and fiscal variables isolate shifts to desired saving. We estimated the reduced form for CDP-weighted world averages of the expected short-term real interest rate and the investment ratio over the period 1959-88. The estimates reveal significant effects in the predicted direction for world stock returns, oil prices, and world monetary growth, but fiscal variables turned out to be unimportant. Structural estimation implies that an increase by one percentage point in the expected real interest rate raises the desired saving rate by onethird of a percentage point. Simulations of the model indicated that fluctuations in world stock returns and oil prices explain a good deal of the time series for the world average of expected real interest rates; specifically, why the rates were low in 1974-79 and high in 1981-86. The model also explains the fall in real rates in 1987-88 and the subsequent upturn in 1989. The fitted relation forecasts an increase in the world average of real interest rates in 1990 to a value, 5.6 %, that is nearly a full percentage point above the highest value attained in the entire prior sample, 1958-89. We estimated systems of equations for individual countries' expected real interest rates and investment ratios. One finding is that each country's expected real interest rate depends primarily on world factors, rather than own-country factors, thereby suggesting a good deal of integration of world capital and goods markets.

(This abstract was borrowed from another version of this item.)

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 227.

as in new window
Length: 57 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:roc:rocher:227

Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: interest rate ; investments ; demand ; natural resources;

Other versions of this item:

References

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.:
as in new window
  1. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Robert J. Barro, 1980. "Intertemporal Substitution and the Business Cycle," NBER Working Papers 0490, National Bureau of Economic Research, Inc.
  3. Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-57, December.
  4. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  5. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
  6. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 281-300, September.
  7. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:roc:rocher:227. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabriel Mihalache).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.