Cover of EconPol Policy Report 22

The Real Interest Rates Across Monetary Policy Regimes

Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid)

Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid) has reviewed the main theories of interest rate determination and studied the dynamics of the real interest rate in US. Using cointegration techniques, he searched for equilibrium relationships between the real interest rate, monetary factors and real factors and studied how these relationships change with the policy regimes. His analysis of monthly US data since the early 20th century finds equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. The equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.

Abstract

This paper reviews the main theories of interest rate determination and studies the dynamics of the real interest rate in US. Using cointegration techniques we search for equilibrium relationships between the real interest rate, monetary factors and real factors and we study how these relationships change with the policy regimes. We analyze monthly US data since early 20th century and find equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. Moreover, we find that the equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.

Citation

Hernán D. Seoane: "The Real Interest Rates Across Monetary Policy Regimes", EconPol Policy Report 22, July 2020