Thrift, Productivity and the Real Rate of Interest in Australia

Kim Hawtrey

Economic Analysis and Policy, 1999, vol. 29, issue 2, 151-171

Abstract: In a small open economy, it is common to regard the domestic interest rate as a function of the world rate plus a local risk premium. At the same time. Irving Fisher's longstanding theory of the real interest rate emphasises the twin domestic forces of consumer thrift and producer productivity. This paper tests for a relationship between the Fisher variables and Australia's real interest rate. It is found that these two variables explain well the observed stationarity of the Australian real rate of interest since the early 1980s, indicating that thrift and productivity provide a robust theoretical framework for the macroeconomic factors that determine the risk premium. 2 downloads: http://www.eap-journal.com.au/download.php?file=362 and http://www.eap-journal.com.au/download.php?file=363

Keywords: Consumer; Interest Rates; Interest; Productivity (search for similar items in EconPapers)
JEL-codes: D24 E21 E43 O47 (search for similar items in EconPapers)
Date: 1999
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