THE THEORY OF INTEREST

As a further test of the validity of the comparisons,the parabola trend deviations for the recent period, end-ing with the high point for both P and % in 1920, havebeen computed and plotted, though the charts are nothere shown. It might be supposed that the elimination ofa parabolic trend from these violently fluctuating serieswould leave only erratic wiggles in the P and i curveswith little or no correspondence with each other. That

S2<OSCOO>OHNCO'il'U3<ONCOO>OHN COtJICO C- C-C- D-e-C— C- C-C- CO CO CD comcn prt m m w

CHART 55

Curves Showing P and i with Straight Line Trends Parabolic Trends.Yearly Data, Great Britain, 1865-1897.

price levels and interest rates are very closely related,even when great secular and cyclical forces are elim-inated, is clearly demonstrated by the results of theseinvestigations. The correlation coefficients obtained fromthe data for the period ending in 1920 with the parabolictrends eliminated are about + 0.70, which certainly indi-cates that yearly fluctuations, as well as cyclical andsecular trends, of prices and interest are generally in thesame direction. The coefficients obtained from correlatingP and i with straight line trends eliminated are plottedon Chart 58.

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