A note on alternative measures of real bond rates

The purpose of this note is to derive measures of ex ante long-term real interest rates that satisfy Fisher's notion of a long-run relationship between expectations of inflation and nominal interest rates. We do so by adopting a backward-looking approach that also takes account of the increasing integration of financial markets by allowing for global influences on national bond rates. The results point to long memories in the inflation formation process as well as to significant international linkages. Moreover, once these effects are allowed for, expectations of inflation and long-term bond rates appear to be cointegrated with cointegration vectors of unity. However, whether the measures derived provide better estimates of agents' actual perceptions of ex ante real rates than those commonly used remains to be seen, as we do not test their forecasting ability.

Key words: expectations of inflation, real bond rates, cointegration.

JEL classification: E43.