RDP 9104: Cross-Country Relationship Between Interest Rates and Inflation over Three Decades Appendix 2: Regression Equations[a]
June 1991
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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]