Long-term persistence in the real interest rate: some evidence of a fractional unit root
✍ Scribed by Kon S. Lai
- Publisher
- John Wiley and Sons
- Year
- 1997
- Tongue
- English
- Weight
- 156 KB
- Volume
- 2
- Category
- Article
- ISSN
- 1076-9307
No coin nor oath required. For personal study only.
✦ Synopsis
This study examines the long-term persistence in ex ante real interest rates. According to the long-run Fisher effect, ex ante real ratesÐthe difference between nominal rates and expected in¯ationÐshould be mean-reverting and have no unit root. Empirical evidence on mean reversion has been mixed and less than supportive, however. Prior analyses are restricted to integer orders of integration only. This study provides a reappraisal of the evidence using fractional integration analysis. In addition, expected in¯ation is measured by in¯ation forecasts and not just by realized in¯ation rates. Empirical results strongly support that ex ante real interest rates exhibit mean reversion, but in a special manner not captured by the usual stationary processes. This ®nding is also corroborated by empirical results based upon ex post real rates.