What Fisher knew about his relation, we sometimes forget
Author
Arnwine, N.
Yigit, T. M.
Date
2008Source Title
Economics Letters
Print ISSN
0165-1765
Electronic ISSN
1873-7374
Publisher
Elsevier BV
Volume
101
Issue
3
Pages
193 - 195
Language
English
Type
ArticleItem Usage Stats
111
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Abstract
Expected consumption growth increases the real interest rate as one tries to smooth consumption over time. We demonstrate that placing it in the Fisher relation 1) is consistent with the Euler equation governing the purchase of nominal bonds, 2) explains observed procyclicality of the real interest rate. 3) is supported empirically, and 4) provides an alternative method for estimating the consumer's degree of relative risk aversion. (C) 2008 Elsevier B.V. All rights reserved.