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Published online by Cambridge University Press: 24 July 2020
In the following, estimates of the real interest rate will be presented for the 10 largest economies according to the World Bank comparison for 2017. The countries included are the USA, China, Japan, Germany, United Kingdom, India, France, Brazil, Italy, and Canada. The interest rate used for this purpose is the nominal lending rate reported by the World Bank. Besides data on the nominal rates, the World Bank also reports real rates of interest. For these official calculations, inflation is measured as the percentage change of the GDP Deflator. For comparison and for the use by analysts and historians, we offer estimates of ex ante real rates based on the pattern approach. For this purpose, pattern-based expected inflation rates are computed (based on GDP-deflator data published by the World Bank) and used to correct the nominal lending rate for the expected inflation.1 Evidently, the ex ante real rate of interest (i.e., neither the nominal rate nor the ex post real rate) appropriately characterizes the circumstances under which economic decisions, for example, by investing firms, are taken.
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