Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one-for-one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently. The authors characterize the shifts in inflation by a Markov switching model. Based upon this model's forecasts, they reexamine the long-run relationship between nominal interest rates and inflation. Interestingly, the authors are unable to reject the hypothesis that, in the long run, nominal interest rates reflect expected inflation one-for-one.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. The author estimates and compares investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the house of Morgan were liquidity constrained.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal‐agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan‐affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained.

Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one-for-one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently. The authors characterize the shifts in inflation by a Markov switching model. Based upon this model's forecasts, they reexamine the long-run relationship between nominal interest rates and inflation. Interestingly, the authors are unable to reject the hypothesis that, in the long run, nominal interest rates reflect expected inflation one-for-one.

Recent empirical studies suggest that nominal interest rates and expected inflation do not move together one‐for‐one in the long run, a finding at odds with many theoretical models. This article shows that these results can be deceptive when the process followed by inflation shifts infrequently. We characterize the shifts in inflation by a Markov switching model. Based upon this model's forecasts, we reexamine the long‐run relationship between nominal interest rates and inflation. Interestingly, we are unable to reject the hypothesis that in the long run nominal interest rates reflect expected inflation one‐for‐one.