The Real Interest Rates Across Monetary Policy Regimes

Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid) has reviewed the main theories of interest rate determination and studied the dynamics of the real interest rate in the US. Using cointegration techniques, he searched for equilibrium relationships between the real interest rate, monetary factors and real factors and studied how these relationships change with the policy regimes. His analysis of monthly US data since the early 20th century finds equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. The equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.