A working paper published yesterday by the International Monetary Fund claims to shed light on "a narrow but crucial question in finance: what should be the parameters of a model of the short-term real interest rate?".

Author Vadim Khramov writes that although models for the nominal interest rate are "well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more