Real interest rate persistence: evidence and implications

Christopher Neely and David E. Rapach

No 2008-018, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The real interest rate plays a central role in many important financial and macroeconomic models, including the consumption-based asset pricing model, neoclassical growth model, and models of the monetary transmission mechanism. We selectively survey the empirical literature that examines the time-series properties of real interest rates. A key stylized fact is that postwar real interest rates exhibit substantial persistence, shown by extended periods of time where the real interest rate is substantially above or below the sample mean. The finding of persistence in real interest rates is pervasive, appearing in a variety of guises in the literature. We discuss the implications of persistence for theoretical models, illustrate existing findings with updated data, and highlight areas for future research.

Keywords: Interest; rates (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (71)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2008-018

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DOI: 10.20955/wp.2008.018

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