Abstract: The Journal of FinanceVolume 43, Issue 5 p. 1095-1112 Article Is the Real Interest Rate Stable? ANDREW K. ROSE, ANDREW K. ROSESchool of Business Administration, University of California, Berkeley. My thanks to Greg Connor, Stephen LeRoy, and Richard Meese for comments on earlier drafts and to Matt Lynde and Pier Ardeni for research assistance.Search for more papers by this author ANDREW K. ROSE, ANDREW K. ROSESchool of Business Administration, University of California, Berkeley. My thanks to Greg Connor, Stephen LeRoy, and Richard Meese for comments on earlier drafts and to Matt Lynde and Pier Ardeni for research assistance.Search for more papers by this author First published: December 1988 https://doi.org/10.1111/j.1540-6261.1988.tb03958.xCitations: 179 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat ABSTRACT Univariate time-series models for consumption, nominal interest rates, and prices each appear to have a single unit root before 1979. If nominal interest rates have a unit root but inflation and inflation forecast errors do not, then ex ante real interest rates have a unit root and are therefore nonstationary. This deduction does not depend on the properties of the unobservable ex post observed real return, which combines the ex ante real interest rate and inflation-forecasting errors. The unit-root characteristic of real interest rates is puzzling from at least two perspectives: many models imply that the growth rate of consumption and the real interest rate should have similar time-series characteristics; also, nominal returns for other assets (e.g., stocks and bonds) appear to have different times-series properties from those of treasury bills. REFERENCES 1John H. Cochrane How Big Is the Random Walk in GNP?" Forthcoming, Journal of Political Economy (1988). 2J. Bradford DeLong and Lawrence H. Summers Is Increased Price Flexibility Stabilizing American Economic Review 76 (December 1986), 1031–44. 3Eugene F. 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Journal of Political Economy 87 (December 1979), 1190–1219. 24Robert J. Shiller Can the Fed Control Real Interest Rates." In S. Fischer (ed.), Rational Expectations and Economic Policy. Chicago: University of Chicago Press, 1980. 25Robert J. Shiller and Jeremy J. Siegel The Gibson Paradox and Historical Movements in Real Interest Rates. Journal of Political Economy 85 (October 1977), 891–907. 26Kenneth D. West On the Interpretation of Near Random Walk Behavior in GNP. Woodrow Wilson Discussion Paper in Economics No. 124, 1987. Citing Literature Volume43, Issue5December 1988Pages 1095-1112 ReferencesRelatedInformation
Publication Year: 1988
Publication Date: 1988-12-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 135
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