Excess Long Real Rate Volatility
Journal of Multinational Financial Management
Variance and comovement bounds tests are performed on riskless real interest rates for the USA, Canada, UK, Germany, and Japan. Each country’s long real rate exhibits excess volatility relative to its fundamental long real rate derived under the rational expectations theory of real term structure. Internationally, each country’s long real rate relative to the USA exhibits excess comovement relative to their corresponding fundamental long real rates. The excess volatility clouds the arbitrage-induced link between long and short real rates. This noise hinders the monetary transmission mechanism and the ability of central bankers to influence long real rates by managing short real rates.
Smoluk, Herbert J. PhD, "Excess Long Real Rate Volatility" (1999). Faculty Publications. 87.