The Behavior of the Real Rate of Interest over the Business Cycle

FRB Richmond Working Paper No. 00-9

39 Pages Posted: 27 Nov 2012

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Brian Scholl

affiliation not provided to SSRN

Date Written: August 1, 2000

Abstract

In this paper we document real rate behavior. We do this by looking across a wide variety of constructed real rate series. These series are obtained by using a number of different methodologies for estimating expected inflation, using several different price series, and looking over different time periods. The evidence suggests that over the entire sample period, real rate increases follow output increases and the real rate is positively correlated with contemporaneous output. These results, however, are sensitive to the price series used. That is, we find evidence of specification uncertainty. We also find that real rate behavior varies over different sample periods.

Keywords: real rate of interest, business cycles, cross correlations, stationarity, monetary policy

JEL Classification: E50, E37, C32, C52

Suggested Citation

Dotsey, Michael and Scholl, Brian, The Behavior of the Real Rate of Interest over the Business Cycle (August 1, 2000). FRB Richmond Working Paper No. 00-9, Available at SSRN: https://ssrn.com/abstract=2126769 or http://dx.doi.org/10.2139/ssrn.2126769

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Brian Scholl

affiliation not provided to SSRN

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