A choice-theoretic and information-oriented approach to the short-run characteristics of real and nominal interest rates
Umit Erol and
Applied Economics Letters, 1995, vol. 2, issue 6, 191-195
The paper adopts a choice-theoretic, information-oriented approach to the issue of stationarity of real interest rates. It is shown that a constant real rate of interest, even for short run and within the context of a simple two-market framework, requires overly demanding assumptions which are unlikely to be satisfied if efficient market hypothesis is explicitly considered. Such a model which indirectly supports the short-run variability of real interest rates in response to random information signals is tested empirically by utilizing multiple time series models for the 1959-87 observation period. The empirical results suggest a favourable interpretation of the model.
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