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The time‐varying behaviour of real interest rates: a re‐evaluation of the recent evidence
Author(s) -
Bekdache Basma
Publication year - 1999
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(199903/04)14:2<171::aid-jae502>3.0.co;2-u
Subject(s) - heteroscedasticity , econometrics , economics , ex ante , inflation (cosmology) , interest rate , variance (accounting) , variable (mathematics) , conditional variance , markov chain , real interest rate , statistics , mathematics , autoregressive conditional heteroskedasticity , macroeconomics , volatility (finance) , mathematical analysis , physics , accounting , theoretical physics
A time‐varying parameter model with Markov‐switching conditional heteroscedasticity is employed to investigate two sources of shifts in real interest rates: (1) shifts in the coefficients relating the ex ante real rate to the nominal rate, the inflation rate and a supply shock variable and (2) unconditional shifts in the variance of the stochastic process. The results underscore the importance of modelling continual change in the ex ante real rate in terms of other economic variables rather than relying on a statistical characterization that permits only a limited number of discrete jumps in the mean of the process. Copyright © 1999 John Wiley & Sons, Ltd.