Can Switching Between Inflationary Regimes Explain Fluctuations in Real Interest Rates?

October 1, 1997

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

It has recently been suggested that allowing for switches between different inflationary regimes produces a much better fit for the Fisher relationship between interest rates and inflation, at least for U.S. data. The paper assesses the merits of the regime-switching theory as an explanation for the apparent fluctuations in real interest rates in Australia, Canada, Germany, the United Kingdom, and the United States.

Subject: Financial services, Inflation, Long term interest rates, Prices, Real interest rates, Short term interest rates, Yield curve

Keywords: debt ratio, dependent variable, high-inflation regime, Inflation, inflation rate, interest rate, interest rate data, interest rates, Long term interest rates, long-term interest rates, LR statistic, nominal interest rate, real interest rate, Real interest rates, running mean inflation, Short term interest rates, test statistics, white-noise process, WP, Yield curve, yield gap

Pages:
25
Volume:
1997
DOI:
https://doi.org/10.5089/9781451855241.001
Issue:
131
Series:
Working Paper No. 1997/131
Stock No:
WPIEA1311997
ISBN:
9781451855241
ISSN:
1018-5941

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