Working Paper: NBER ID: w2116
Authors: Carl E. Walsh
Abstract: Huizinga and Mishkin (1986) have recently proposed a simple method for testing whether monetary policy regime changes have affected the ex-ante real rate of interest. This paper shows that care must be taken in choosing the set of variables on which to project the ex-post real rate if inferences about the ex-ante real rate are to be drawn. It is shown that Huizinga. and Mishkin's tests cannot distinguish between shifts in the real rate process and shifts in the inflation process.
Keywords: Monetary Policy; Real Interest Rates; Regime Shifts
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy regime shifts (E63) | misinterpretation of shifts in the real rate process (E43) |
| monetary policy regime shifts (E63) | changes in the inflation process (E31) |
| nominal interest rate (E43) | skewing of projection coefficients used to estimate the real rate (C51) |
| skewing of projection coefficients used to estimate the real rate (C51) | erroneous conclusions about shifts in the real rate process (E43) |