Structural change and long-run reversion in the ex ante real interest rate

Abstract

This study examines recent US data on Treasury inflation-protected securities and presents new evidence supporting the Fisher hypothesis. The real interest rate may appear to display no mean reversion when in fact it is mean-reverting and a structural shift is responsible. According to break date estimates, the structural change occurred shortly after the collapse of Lehman Brothers at the height of the US financial crisis. The timing also coincided with the launch of quantitative easing by the Federal Reserve.

Keywords:

• real interest rate
• Fisher effect
• mean reversion
• structural break
• quantitative easing

JEL Classification:

• E43
• G15