The Real Interest Rate: An Empirical Investigation

Frederic S. Mishkin

NBER Working Paper No. 622 (Also Reprint No. r0243)
Issued in 1981
NBER Program(s):   EFG

This paper is an empirical exploration of real interest rate movements in the United States over the last fifty years. It focuses on several questions which have repeatedly arisen in the literature. How valid is the hypothesis associated with Fama (1975) that the real rate of interest is constant? Does the real rate decline with increases in expected inflation? Are cyclical movements in real variables correlated with real rate movements? How reliable is the Fishei (1930) effect where nominal interest rates reflect changes in expected inflation? What kind of variation in real interest rates have we experienced in the last fifty years? Have real rates turned negative in the 1970s, as is commonly believed, and were they unusually high in the initial stages of the Great Depression? In pursuing these questions, this paper first outlines in section II the methodology and theory used in the empirical analysis. The empirical results then follow in section III, and a final section contains the concluding remarks.

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Document Object Identifier (DOI): 10.3386/w0622

Published: Mishkin, Frederic S. "The Real Interest Rate: An Empirical Investigation." The Costs and Consequences of Inflation, Carnegie-Rochester Conference Series on Public Policy, Vol. 15, (Autumn 1981), pp. 151-200 and 21 3-218. citation courtesy of

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