SHORT-TERM INTEREST-RATE AND INFLATION IN THE LONG-RUN - A STUDY OF THE US AND UK FROM 1803 TO 1990

This paper provides empirical evidence concerning the long-run propert ies of expected real interest rate and nominal interest rate as a pred ictor of inflation using US and UK data from 1803 to 1990. It is found that we can reject the null hypothesis of constancy of ex ante real i nterest rate for the US, but we cannot reject it for the case of the U K. Evidence also suggests that over the long time period, nominal inte rest rate does not seem to be a good predictor of inflation, especiall y for the case of the US.