1000 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28

Thus, an error Ai has the same effect as Ayly® that is we must
compare y2A: with Ay. Thus the error in y can be 0.1 and the
error in ¢ can be 0.015 but

v2A; =O.I5 .

It can thus be seen that the influence of an error in ; can be great
and as you know it is very difficult ot estimate the pure rate of
interest.
We con derive the same conclusion in another way. For the
United States. we can calculate the theoretical value of :

where ©, is the average value 4.12 found for ®_,. Thus we find
the following table

ITnited State

t88o-190C
rf rr

107°

FOSO-TOGEH

Periods

Estim-*-d value |theoretical value

ty

difference
Ai = i —iT

[.2I
- 08

5

2.232

Thus, for the period 1880-1956, the differences A: are quite
small and do not exceed 1.5%. But for 1950-1956, the difference
is very great. The reason is, in my opinion, the fact that American
monetary policy has maintained the rate of interest on bonds at an

ir] Allais - pag. 304