Premium
Interest Rates, Uncertainty and the Livingston Data
Author(s) -
BOMBERGER WILLIAM A.,
FRAZER WILLIAM J.
Publication year - 1981
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1981.tb00651.x
Subject(s) - standard deviation , econometrics , inflation (cosmology) , economics , measure (data warehouse) , interest rate , standard error , statistics , mathematics , macroeconomics , physics , computer science , database , theoretical physics
The observed relationship between the standard deviation of forecasts and past forecast errors as found in the Livingston survey suggests the interpretation of the standard deviation as a measure of inflation uncertainty. The mean and the standard deviation for the inflation rate forecast found in the Livingston survey, furthermore, are used as regressors in a reduced‐form interest rate equation. The results indicate a large negative effect of such uncertainty on interest rates. The inclusion of the uncertainty measure and commonly omitted lagged values of all variables in our analysis of data leads to more theoretically plausible estimated effects of money growth and expected inflation on interest rates than do standard estimates.