Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology
Pierre St-Amant ()
Macroeconomics from University Library of Munich, Germany
In this paper, the author uses structural vector autoregression methodology to decompose U.S. nominal interest rates into an expected inflation component and an ex ante real interest rate component. He identifies inflation expectations and ex ante real interest rate shocks by assuming that nominal interest rates and inflation expectations move one-for-one in the long-run - they are cointegrated (1,1) - and that the real interest rate is stationary. He finds that changes in inflation expectations and in the ex ante real interest rate are both important in explaining fluctuations in the U.S. 1-year and 10-year government bond rates. The author also finds that, while the increase in the 1-year and the 10-year bond rates in the 1970s and the early 1980s mainly reflects higher inflation expectations, changes in ex ante real interest rates appear to account for most of the fluctuations in these rates in 1994 and in the first half of 1995.
JEL-codes: E (search for similar items in EconPapers)
Pages: 19 pages
Note: 19 printed pages, compressed PostScript file. Other recent Bank of Canada working papers are listed on the last page of this report.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Working Paper: Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest rates Using Structural VAR Methodology (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9602004
Access Statistics for this paper
More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().