Measuring the Expected Real Rate of Interest- An Exploration of Macroeconomic Alternatives: Reply and Further Thoughts
American Economic Review
2016
John Merrick's critique of my 1977 study of real interest rate movements rests on two grounds. The criticism that occupies most of his attention is concerned with whether my model remains internally consistent when either of the two models of inflationary expectations are added to the macro-economic models of the real rate of interest. Merrick finds that each of my macroeconomic models of the real rate has embedded in it a model of inflationary expectations when rational expectations are applied to it, so that my procedure of adding alternative models of inflationary expectations to each macro-economic structure produces a misspecification of the models and constitutes a fundamental flaw in
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