Real interest rates and inflation: An ex-ante empirical analysis

Shmuel Kandel, Aharon R. Ofer, Oded Sarig

Research output: Contribution to journalArticlepeer-review

57 Scopus citations


We develop a method of measuring ex-ante real interest rates using prices of index and nominal bonds. Employing this method and newly available data, we directly test the Fisher hypothesis that the real rate of interest is independent of inflation expectations. We find a negative correlation between ex-ante real interest rates and expected inflation. This contradicts the Fisher hypothesis but is consistent with the theories of Mundell and Tobin, Darby and Feldstein, and Stulz. We also find that nominal interest rates include an inflation risk premium that is positively related to a proxy for inflation uncertainty.

Original languageEnglish
Pages (from-to)205-225
Number of pages21
JournalJournal of Finance
Issue number1
StatePublished - Mar 1996


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