Real Interest Rate Persistence: Evidence and Implications

Posted: 25 Jun 2008

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

David Rapach

Saint Louis University; Washington University in St. Louis

Date Written: June 25, 2008

Abstract

The real interest rate plays a central role in many important financial and macroeconomic models, including the consumption-based asset pricing model, neoclassical growth model, and models of the monetary transmission mechanism. We selectively survey the empirical literature that examines the time-series properties of real interest rates. A key stylized fact is that postwar real interest rates exhibit substantial persistence, shown by extended periods of time where the real interest rate is substantially above or below the sample mean. The finding of persistence in real interest rates is pervasive, appearing in a variety of guises in the literature. We discuss the implications of persistence for theoretical models, illustrate existing findings with updated data, and highlight areas for future research.

Keywords: Real interest rate, Consumption-based asset pricing model, Neoclassical growth model

JEL Classification: C22, E21, E44, E52, E62, G12

Suggested Citation

Neely, Christopher J. and Rapach, David, Real Interest Rate Persistence: Evidence and Implications (June 25, 2008). Available at SSRN: https://ssrn.com/abstract=1151429

Christopher J. Neely (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

David Rapach

Saint Louis University ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

HOME PAGE: http://https://sites.google.com/slu.edu/daverapach

Washington University in St. Louis

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://https://sites.google.com/slu.edu/daverapach

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,603
PlumX Metrics