Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis

Shmuel Kandel, Aharon R. Ofer, Sarig and Oded

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: We develop a method of measuring ex-ante real interest rate using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex-ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.

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Journal Article: Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis (1996)
Working Paper: Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis
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Persistent link: https://EconPapers.repec.org/RePEc:fth:pennfi:02-95

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