Thursday, December 8, 2011

A "Real Rate" Pattern

Out with the dogs, my mind wanders to the comparison of DPD and the interest rate. Long term. Long wave. Mismatched peaks. I suddenly wonder whether the real interest rate would show the long wave also, and whether it might match up better to the DPD.

Silly me:

Graph #1

Later, it occurred to me to look for a trend in that mess.

Graph #2

Neh. Nothing at first glance surfaces to strike me as similar to a longwave.

But after looking at it a few times over a few days, I am seeing things:
1. A general downtrend from 1875 to 1900.
2. A general uptrend from 1900 to 1931 -- with a big, V-shaped hole in it, apparently associated with the First World War. I observe that the moving average returns to trend by 1922, despite that big hole.
3. A general downtrend from 1931 to 1947.
4. A general uptrend from 1947 to 1963.
5. Down from 1963 to 1977.
6. Up from 1977 to 1984.
7. Down from 1984 to 2006 or after.

I think the big V-shaped hole with a bottom at 1918 is exogenous. The general uptrend from 1900 to 1931 is the endogenous or default pattern for that period.

Other than that, I can't say how these trend changes fit into anybody's observations or predictions of the longwave pattern. I only point out that my description of real rate trends *is* a long wave pattern.

1 comment:

LiminalHack said...

The interesting thing from the last chart is how rarely in the post war perdiod the real rate is negative, compared to the prewar period.

Of course, this is all about macro stabilisation as per ashwin's blog.

The positive real rate has only been maintained that way by the blow out in total debt.

If the trend of real rates is to oscillate about zero, the chart suggests that we might expect 40 years or so of persistently negative real rates.