FUNDAMENTALS OF THE US AND THE UK INTEREST RATES UNDER THE RATIONAL EXPECTATION SCHEME

Ignacio Mauleón () and Mª Mar Sánchez
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Mª Mar Sánchez: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper presents a macro-econometric model for medium- and long-term nominal interest rates and the empirical results obtained with US and UK data. The explanatory equation for nominal interest rates is derived from the equilibrium condition of the savings market and takes real, financial and foreign aspects into account. Expected values of the inflation rate appear as regressors and, assuming rational expectations, two alternative models are obtained and estimated by the generalized method of moments. The empirical results for the US support: a) the strong influence of the inflation rate on the nominal interest rate (although the Fisher hypothesis is not completely fulfilled), b) the importance of the growth rate of the real GDP in the interest-rate determination, and c) the fulfilment of the Ricardian hypothesis. The UK nominal interest rate follows the US nominal interest rate.

Keywords: rational expectations; gmm estimation (search for similar items in EconPapers)
JEL-codes: C32 E43 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2000-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2000-20

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