Inflation Expectations Drive Nominal Interest Rates: Impact on Global Economies
Interest rates in the US and other industrial countries dropped significantly from the 1980s peak levels by 1996. The rise in interest rates before the 1980s was due to both higher inflation and real interest rates. After 1981, lower inflation led to lower interest rates. Real interest rates were not constant in all countries. Tests showed that changes in inflation had a stronger impact on interest rates than changes in real interest rates.