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Determinants of the expected real long-term interest rates in the G7-countries

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Abstract:

The paper investigates which factors determine the expected real long-term interest rates of the G7-countries as a whole within a single equation error correction model. Inflationary expectations are generated using the low frequency component of inflation provided by the Hodrick-Prescott filter. A comparison of the calculated expected inflation rates with those resulting from index-linked and conventional UK bonds suggests this approach to be appropriate. Expected real long-term interest rates turn out to be influenced positively by real short-term interest rates, capacity utilization and structural public borrowing.

Document Type: Research Article

DOI: https://doi.org/10.1080/000368498326074

Publication date: 1998-02-01

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