IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v29y1997i3p359-364.html
   My bibliography  Save this article

Is the real interest rate unstable? Some new evidence

Author

Listed:
  • Kon Lai

Abstract

Prior studies typically report that real Treasury bill returns have a unit root. The unit-root findings are not consistent with the long-run Fisher effect and consumptionbased asset pricing models. This study examines a data set of ex ante real returns on US Treasury bills and commercial papers. The statistical analysis employs a new modified Dickey-Fuller test, whc has better power than standard unit-root tests. In contrast to previous findings, strong evidence of stationarity is found for all the real return series under examination. Implications of the results are discussed.

Suggested Citation

  • Kon Lai, 1997. "Is the real interest rate unstable? Some new evidence," Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 359-364.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:3:p:359-364
    DOI: 10.1080/000368497327137
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/000368497327137
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/000368497327137?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Evans, Martin D D & Lewis, Karen K, 1995. "Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?," Journal of Finance, American Finance Association, vol. 50(1), pages 225-253, March.
    2. Carl Bonham, 1990. "Correct Cointegration Tests of the Long Run Relationship Between Nominal Interest and Inflation," Working Papers 199026, University of Hawaii at Manoa, Department of Economics.
    3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    4. Rubinstein, Mark, 1976. "The Strong Case for the Generalized Logarithmic Utility Model as the Premier Model of Financial Markets," Journal of Finance, American Finance Association, vol. 31(2), pages 551-571, May.
    5. Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September.
    6. Garbade, Kenneth & Wachtel, Paul, 1978. "Time variation in the relationship between inflation and interest rates," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 755-765, November.
    7. Wallace, Myles S & Warner, John T, 1993. "The Fisher Effect and the Term Structure of Interest Rates: Tests of Cointegration," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 320-324, May.
    8. Antoncic, Madelyn, 1986. "High and Volatile Real Interest Rates: Where Does the Fed Fit In?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 18-27, February.
    9. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September.
    10. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-265, April.
    11. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
    12. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    13. repec:bla:jfinan:v:43:y:1988:i:5:p:1095-1112 is not listed on IDEAS
    14. Fama, Eugene F. & Gibbons, Michael R., 1982. "Inflation, real returns and capital investment," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 297-323.
    15. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    16. Mishkin, Frederic S, 1995. "Nonstationarity of Regressors and Tests on Real-Interest-Rate Behavior," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 47-51, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tai-Hu Ling, & Venus Khim-Sen Liew & Syed Azizi Wafa Syed Khalid Wafa, 2007. "Real Interest Rates Equalization: The Case of Malaysia and Singapore," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 24-37, August.
    2. C C Tsong & A Hachicha, 2014. "Revisiting the Fisher Hypothesis for Several Selected Developing Economies: a Quantile Cointegration Approach," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 57-72, March.
    3. Lai, Kon S., 2004. "On structural shifts and stationarity of the ex ante real interest rate," International Review of Economics & Finance, Elsevier, vol. 13(2), pages 217-228.
    4. Kostas Tsatsaronis & Frank Smets, 1997. "Why does the yield curve predict economic activity? Dissecting the evidence for Germany and the United States," BIS Working Papers 49, Bank for International Settlements.
    5. Andrew Phiri & Lutho Mbekeni, 2021. "Fisher’s hypothesis, survey-based expectations and asymmetric adjustments: Empirical evidence from South Africa," International Economics and Economic Policy, Springer, vol. 18(4), pages 825-846, October.
    6. Lai, Kon S., 2008. "The puzzling unit root in the real interest rate and its inconsistency with intertemporal consumption behavior," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 140-155, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Review, Federal Reserve Bank of St. Louis, vol. 90(Nov), pages 609-642.
    2. Lai, Kon S., 2008. "The puzzling unit root in the real interest rate and its inconsistency with intertemporal consumption behavior," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 140-155, February.
    3. Stuart Hyde & Mohamed Sherif, 2004. "Don't break the habit: structural stability tests of consumption models in the UK," Money Macro and Finance (MMF) Research Group Conference 2003 49, Money Macro and Finance Research Group.
    4. Ravi Jagannathan & Yong Wang, 2005. "Consumption Risk and the Cost of Equity Capital," NBER Working Papers 11026, National Bureau of Economic Research, Inc.
    5. Martin D. Evans & Paul Wachtel, 1990. "A Modern Look At Asset Pricing and Short-Term Interest Rates," NBER Working Papers 3245, National Bureau of Economic Research, Inc.
    6. Rapach, David E. & Weber, Christian E., 2004. "Are real interest rates really nonstationary? New evidence from tests with good size and power," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 409-430, September.
    7. Sonali Das & Rangan Gupta & Patrick Kanda & Monique Reid & Christian Tipoy & Mulatu Zerihun, 2014. "Real interest rate persistence in South Africa: evidence and implications," Economic Change and Restructuring, Springer, vol. 47(1), pages 41-62, February.
    8. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June.
    9. Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
    10. Lee, Wai, 1997. "Covariance risk, consumption risk, and international stock market returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(2), pages 491-510.
    11. H. Youn Kim, 2003. "Intertemporal production and asset pricing: a duality approach," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 344-379, April.
    12. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    13. Peng, Yajun & Shawky, Hany, 1997. "Productivity shocks and capital asset pricing," International Review of Economics & Finance, Elsevier, vol. 6(3), pages 303-316.
    14. Gil-Alana, Luis A. & Cunado, Juncal & Gupta, Rangan, 2017. "Evidence of persistence in U.S. short and long-term interest rates," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 775-789.
    15. Alberto Giovannini & Philippe Weil, 1989. "Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model," NBER Working Papers 2824, National Bureau of Economic Research, Inc.
    16. Aslanidis, Nektarios & Demiralp, Selva, 2013. "How did the Financial Crisis affect the Real Interest Rate Dynamics in Europe?," Working Papers 2072/211885, Universitat Rovira i Virgili, Department of Economics.
    17. Smoluk, H. J. & Neveu, Raymond P., 2002. "Consumption and asset prices: An analysis across income groups," Review of Financial Economics, Elsevier, vol. 11(1), pages 47-62.
    18. repec:dau:papers:123456789/2514 is not listed on IDEAS
    19. Kris Jacobs, 2001. "Estimating Nonseparable Preference Specifications for Asset Market Participants," CIRANO Working Papers 2001s-12, CIRANO.
    20. Campbell, John Y. & Clarida, Richard H., 1987. "The term structure of euromarket interest rates : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 25-44, January.
    21. Chu, Quentin C. & Pittman, Deborah N. & Yu, Linda Q., 2003. "Real rates, nominal rates, and the Fisherian link," International Review of Financial Analysis, Elsevier, vol. 12(2), pages 189-205.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:29:y:1997:i:3:p:359-364. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.