Changes in world real interest rates and inflationary expectations

Changes in World Real Interest Rates and Inflationary Expectations. -One of the major macroeconomic puzzles has been that the real interest rates were persistently low in the seventies and persistently high in the eighties. The authors use a news framework to investigate the extent to which shocks in real output, money supply, world trade, oil prices, stock prices and expected inflation affect the world and national real interest rates. They find dominant effects on real interest rates from movements in expected inflation rates. This suggests the presence of persistent misperceptions about future inflation and the need of further research into the formation of inflationary expectations. © 1994 Institut fur Weltwirtschaft an der Universitat Kiel.