Abstract
Some empirical evidence suggests that the expected real interest and expected inflation rates are negatively correlated. This hypothesis of negative correlation is sometimes known as the Mundell-Tobin hypothesis. In this article we reinvestigate this negative relation from a long-term point of view using cointegration analysis. The data on the historical interest rate on T-bills and the inflation rate indicate that the Mundell-Tobin hypothesis does not hold in the long run for the United States, the United Kingdom, and Canada. We also obtain similar results using the real interest rate on index-linked gilt traded in the United Kingdom.
Original language | English |
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Pages (from-to) | 305-320 |
Number of pages | 16 |
Journal | Journal of Financial Research |
Volume | 25 |
Issue number | 3 |
DOIs | |
Publication status | Published - Sep 2002 |
Externally published | Yes |