Nonstationarity of Regressors and Tests on Real-Interest-Rate Behavior

Frederic S. Mishkin

26 citations0/0 files storedJournal of Business and Economic Statistics

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Economic theories and models

Abstract

This article reexamines tests on the behavior of real interest rates in light of recent results that indicate that regressors are nonstationary and not strictly exogenous. Strong rejections of constancy of real interest rates that have been found previously in the literature are confirmed here. Although there is some evidence here that real rates are negatively correlated with expected inflation, this result is not as strong as has been indicated by previous research. In addition, results that found a significant negative correlation between real rates and nominal rates before 1979 are not supported here, although there is evidence for a positive correlation of real and nominal interest rates after 1979.

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References

1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1982Trends and random walks in macroeconmic time series 1988Trends and random walks in macroeconomic time series 1980Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis 1986Understanding spurious regressions in econometrics 1987The Information in Long-Maturity Forward Rates 2021Short- Term Interest Rates as Predictors of Inflation 1988Variable Trends in Economic Time Series

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1999The time-varying behaviour of real interest rates: a re-evaluation of the recent evidence 1997Is the real interest rate unstable? Some new evidence 2002Are Expected Inflation Rates and Expected Real Rates Negatively Correlated? A Long‐Run Test of the Mundell‐Tobin Hypothesis

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