The Real Interest Rate Spread as a Monetary Policy Indicator

Frank Browne and Mary Everett ()
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Frank Browne: Central Bank and Financial Services Authority of Ireland

No 6/RT/06, Research Technical Papers from Central Bank of Ireland

Abstract: This paper employs a consumption-based capital asset pricing model to derive the generalised Fisher equation, in order to estimate the natural rate of interest and corresponding real interest rate spread for the US. Analysis reveals not only is the estimated real interest rate spread a useful measure of the degree of looseness/tightness in the Federal Reserve’s monetary policy stance, but also the variable contributes substantially to an understanding of the evolution of US inflation over the period 1960-2005.

Pages: 52 pages
Date: 2006-07
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:6/rt/06

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