TY - JOUR AU - Huizinga,John AU - Mishkin,Frederic S. TI - Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates JF - National Bureau of Economic Research Working Paper Series VL - No. 1678 PY - 1986 Y2 - October 1986 UR - http://www.nber.org/papers/w1678 L1 - http://www.nber.org/papers/w1678.pdf N1 - Author contact info: John Huizinga Graduate School of Business The University of Chicago 1101 East 58th Street Chicago, IL 60637 Tel: 773-702-7272; john.huizinga@gsb.uchicago.edu E-Mail: john.huizinga@ChicagoBooth.edu Frederic S. Mishkin Columbia University Graduate School of Business Uris Hall 817 3022 Broadway New York, NY 10027 Tel: 212-854-3488 Fax: 212/662-8474 E-Mail: fsm3@columbia.edu M2 - featured in NBER digest on 1985-11-01 AB - A striking phenomenon of the early 1980s is the climb in real interest rates to levels unprecedented in the post-World War II period. In order to understand this phenomenon, this paper investigates the nature and timing of shifts in the real rate process to determine if the recent unusual behavior of real rates is associated with monetary policy regime changes. We find that not only are there significant shifts in the stochastic process of real interest rates in October 1979 and October 1982 when the Federal Reserve alters its behavior, but these dates are also found to be the most likely breakpoints in the real rate process. When we analyze another monetary policy regime change with many similarities to that of October 1979, the sharp rises in the discount rate in 1920, we also reach a similar conclusion; there is a striking correspondence between the monetary policy regime change and the shift in the real rate process. Other studies have examined competing explanations for the recent unusual behavior of real interest rates -- e.g.budget deficits or favorable changes in business taxation. Although these competing explanations have met with mixed success, our evidence lends substantial support to the view that monetary policy regime changes have been and continue to be an important source of shifts in the behavior of real interest rates. ER -