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The Real Interest Rate Spread as a Monetary Policy Indicator

Author

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  • Browne, Frank

    (Central Bank and Financial Services Authority of Ireland)

  • Everett, Mary

    (Central Bank and Financial Services Authority of Ireland)

Abstract

This paper employs a consumption-based capital asset pricing model to derive the generalised Fisher equation, in order to estimate the natural rate of interest and corresponding real interest rate spread for the US. Analysis reveals not only is the estimated real interest rate spread a useful measure of the degree of looseness/tightness in the Federal Reserve’s monetary policy stance, but also the variable contributes substantially to an understanding of the evolution of US inflation over the period 1960-2005.

Suggested Citation

  • Browne, Frank & Everett, Mary, 2006. "The Real Interest Rate Spread as a Monetary Policy Indicator," Research Technical Papers 6/RT/06, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:6/rt/06
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Anthony J Evans, 2020. "The natural rate of interest: An estimate for the United Kingdom," Economic Affairs, Wiley Blackwell, vol. 40(1), pages 24-35, February.

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