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

Jörg W. Krämer

No 751, Kiel Working Papers from Kiel Institute for the World Economy

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 comparision 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.

JEL-codes: C22 E43 (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:751

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