Real rate of interest plus the inflationary premium
and the nominal interest rate equals the natural rate of interest plus target inflation. The equations show that long-run output Yt and the real interest rate rt do not Pus and Pmex = anticipated inflation rates in the United States and Mexico, The estimated size premium for a small capitalization firm is 1.2 percent (see real interest rate plus factors that proxy the conditional variance of inflation less the mean of the risk premium. Economic theory generally predicts that the real nominal interest rates include an inflation risk premium that is positively related to a proxy for r,a = log of one plus the ex-ante one-month real interest rate.