Regime shifts in European real interest rates

Previous research, using data from 1961 to 1986, has found that the average value of the U.S. real interest rate was subject to occasional jumps caused by external shocks, but between these shocks the average was essentially constant. We have extended this analysis to four major European economies over a sample period that includes the 1990s. For each of the countries, evidence was found in favor of a small number of regime shifts, apart from which the average level of the real rate remained stable. We thus conclude that, like the United States, European real interest rates have generally been stable, only shifting in response to occasional external shocks.