# How to measure the real interest rate using the consumer price index

I am examining how investor sentiment affects the probability of stock market crises. I am using methodology similar to this paper https://ideas.repec.org/p/dij/wpfarg/1110304.html.

One of the control variables in the model is the real interest rate. The authors calculate their measure of the real interest rate as "the money market rate, using the Consumer Price Index" (Table on page 25 of their paper).

I have CPI data for the countries that I am using in my study. However, I am not clear on how to transform Money Market Rate and CPI data into a measure of the real interest rate.

Thanks.

As I do want to be exact (thanks, @noob2): $(1+real)=\frac{1+MMR}{1+CPI}$
• If you want it to be exact: $(1+real)=\frac{1+MMR}{1+CPI}$ Jun 23, 2016 at 13:08