IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The International Linkage of Real Interest Rates: The European - U.S. Connection

  • Robert E. Cumby
  • Frederic S. Mishkin

Casual observation indicates that in recent years real interest rates in the United States appear to have risen sharply and have remained high relative to historical standards. Many observers have claimed that these high real rates have been transmitted abroad and have lead to high real rates in the rest of the industrialized countries. Concern over the level of real rates has been widespread in the analyses by economic policymakers both in Europe and in the United States. In this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries that have been raised by the recent policy debates in Europe and the United States: Have ex ante real rates in the United States and Europe been high during recent years? Has there been a link between U.S. real rates and those in other countries? Can this link be quantified?The basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the European countries and the United States. Indeed, real interest rates in the United States are currently at high levels unprecedented in the post war period, which rival the levels that occurred during the Great Depression. Complaints that real interest rates in the United States are exceedingly high seem to be well justified. There is also strong evidence that there is a positive association between movements in U.S. real rates and those in Europe. However,European real rates typically do not move one-for-one with U.S. real rates,still leaving open the possibility that European monetary policy can influence domestic economic activity.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1423.

in new window

Date of creation: Aug 1984
Date of revision:
Publication status: published as Cumby, Robert E. and Frederic S. Mishkin. "The International Linkage of Real Interest Rates: The European - U.S. Connection," Journal of International Money and Finance, Vol. 5, March 1986, pp. 5-23.
Handle: RePEc:nbr:nberwo:1423
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page:

More information through EDIRC

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. Maurice Obstfeld, 1983. "Intertemporal Price Speculation and the Optimal Current-Account Deficit," NBER Working Papers 1100, National Bureau of Economic Research, Inc.
  2. Robert E. Cumby & Maurice Obstfeld, 1982. "International Interest-Rate and Price-Level Linkages Under Flexible Exchange Rates: A Review of Recent Evidence," NBER Working Papers 0921, National Bureau of Economic Research, Inc.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  4. Frederic S. Mishkin, 1981. "The Real Interest Rate: An Empirical Investigation," NBER Working Papers 0622, National Bureau of Economic Research, Inc.
  5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  6. Frederic S. Mishkin, 1982. "Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions," NBER Working Papers 1048, National Bureau of Economic Research, Inc.
  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.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1423. 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: ()

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.