RDP 9104: Cross-Country Relationship Between Interest Rates and Inflation over Three Decades Appendix 2: Regression Equations[a]

1. Short-Term Interest Rates

Period Dependent Variable a b R2
1961–1969 Nominal 1.08 1.07* 0.55
  Real
 
1.08
(1.17)
0.07
(0.32)
0.01
 
1970–1972 Nominal 4.37* 0.24 0.10
  Real
 
4.37*
(1.22)
−0.76*
(0.21)
0.53
 
1973–1974 Nominal 4.89* 0.35* 0.24
  Real
 
4.89*
(1.83)
−0.65*
(0.17)
0.53
 
1975–1979 Nominal 2.51* 0.60* 0.79
  Real
 
2.51*
(0.85)
−0.40*
(0.08)
0.63
 
1973–1979 Nominal 2.30* 0.62* 0.72
  Real
 
2.30*
(1.04)
−0.38*
(0.10)
0.50
 
1980–1983 Nominal 5.03* 0.74* 0.79
  Real
 
5.03*
(1.01)
−0.26*
(0.10)
0.32
 
1984–1989b Nominal 2.75* 1.49* 0.93
  Real
 
2.75*
(0.53)
0.49*
(0.10)
0.59
 
Government security yields (12 countries only)
1984–1989 Nominal 3.18* 1.39* 0.90
  Real
 
3.18*
(0.67)
0.39*
(0.15)
0.41
 

2. Long-Term Interest Rates

Period Dependent Variable a b R2
1961–1969 Nominal 3.96* 0.52* 0.27
  Real
 
3.96*
(0.87)
−0.48*
(0.24)
0.24
 
1970–1972 Nominal 6.62* 0.15 0.02
  Real
 
6.62*
(1.50)
−0.85*
(0.24)
0.45
 
1973–1974 Nominal 5.50* 0.32 0.16
  Real
 
5.50*
(2.11)
−0.68*
(0.19)
0.46
 
1975–1979 Nominal 4.13* 0.58* 0.66
  Real
 
4.13*
(1.09)
−0.42*
(0.11)
0.51
 
1973–1979 Nominal 3.71* 0.58* 0.57
  Real
 
3.71*
(1.34)
−0.42*
(0.13)
0.41
 
1980–1983 Nominal 5.53* 0.72* 0.70
  Real
 
5.53*
(1.26)
−0.28*
(0.12)
0.26
 
1984–1989b Nominal 4.75* 1.14* 0.87
  Real
 
4.75*
(0.57)
0.14
(0.11)
0.09
 

b New Zealand data on inflation (and hence the real interest rate) is adjusted for the GST in this period.

3. Change in Inflation and Real Interest Rates

Period Dependent Variable a b R2
Including New Zealand
1984–1989 Change in inflation
 
1.11
(2.45)
−0.52
(0.47)
0.07
 
Excluding New Zealand
1984–1989 Change in inflation
 
3.37
(2.45)
−1.04*
(0.49)
0.23
 

Footnote

Numbers in brackets are standard errors. A * indicates that the coefficient is significant at the 5 per cent level. [a]