CHANGES IN WORLD REAL INTEREST-RATES AND INFLATIONARY EXPECTATIONS

Changes in World Real Interest Rates and Inflationary Expectations. On e of the major macroeconomic puzzles has been that the real interest r ates were persistently low in the seventies and persistently high in t he eighties. The authors use a news framework to investigate the exten t to which shocks in real output, money supply, world trade, oil price s, stock prices and expected inflation affect the world and national r eal 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 f urther research into the formation of inflationary expectations.