On the order of integration of monthly US ex-ante and ex-post real interest rates: New evidence from over a century of data

We use a long series of monthly data that spans over 100 years to examine the dynamics of US ex-post and ex-ante real interest rates. The principal tenet of this study is that the data are not consistent with a unit root in real interest rates, although shocks impinging upon these rates are rather persistent. In addition, our results highlight the importance of modeling long memory not only in the conditional mean but in the power transformed conditional variance as well. Overall, these findings suggest that much more attention needs to be paid to the degree of persistence and its consequences for the economic theories which are still inconsistent with the finding of either near-unit-root or long memory mean-reverting behavior.