Determinants of the expected real long-term interest rates in the G7-countries

Jorg Kramer

Applied Economics, 1998, vol. 30, issue 2, 279-285

Abstract: The paper investigates which factors determine the expected real long-term interest rates of the G7-countries as a whole within a single equation error correction model. Inflationary expectations are generated using the low frequency component of inflation provided by the Hodrick-Prescott filter. A comparison of the calculated expected inflation rates with those resulting from index-linked and conventional UK bonds suggests this approach to be appropriate. Expected real long-term interest rates turn out to be influenced positively by real short-term interest rates, capacity utilization and structural public borrowing.

Date: 1998
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DOI: 10.1080/000368498326074

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