TY - JOUR
T1 - On the term structure of interest rates
AU - Donaldson, John B.
AU - Johnsen, Thore
AU - Mehra, Rajnish
N1 - Funding Information:
*We would like to acknowledge helpful conversations with Finn Kydland, Rodolfo Manuelli, and Edward Prescott. Special thanks are also due to the Editor, Associate Editor, and two anonymous referees for insightful comments and suggestions which have helped us to improve the paper substantially. Earlier versions of this paper were presented at the Econometric Society meetings and the Stockholm School of Economics; the comments of the participants are very much appreciated. Donaldson and Mehra would like to thank the National Science Foundation and the Faculty Research Fund of the Graduate School of Business, Columbia University for financial assistance. Mehra also wishes to thank the Institute of Economics and Statistics, Oxford University for a productive visit during which part of this research was completed. Computing facilities were graciously provided by the Center for the Study of Futures Markets, Columbia University. All computer programs are available upon request. The views expressed in this paper do not necessarily reflect those of the International Monetary Fund.
PY - 1990
Y1 - 1990
N2 - This paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates. We undertake both a qualitative and quantitative analysis. First we assess the changing shape of the yield curve over the model economy's 'business cycle' and compare our results with what is empirically observed. Second, we employ the model to study various implications of informational and allocative efficiency, properties which the artificial economy must possess. It is found, for example, that long-term rates are less volatile than short-term rates and that holding premia can be highly correlated over time. Third, we study the time-varying risk premium implicit in the economy's forward rate structure. A purely quantitative assessment of the model's explanatory power is also provided.
AB - This paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates. We undertake both a qualitative and quantitative analysis. First we assess the changing shape of the yield curve over the model economy's 'business cycle' and compare our results with what is empirically observed. Second, we employ the model to study various implications of informational and allocative efficiency, properties which the artificial economy must possess. It is found, for example, that long-term rates are less volatile than short-term rates and that holding premia can be highly correlated over time. Third, we study the time-varying risk premium implicit in the economy's forward rate structure. A purely quantitative assessment of the model's explanatory power is also provided.
UR - http://www.scopus.com/inward/record.url?scp=0001529368&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0001529368&partnerID=8YFLogxK
U2 - 10.1016/0165-1889(90)90034-E
DO - 10.1016/0165-1889(90)90034-E
M3 - Article
AN - SCOPUS:0001529368
SN - 0165-1889
VL - 14
SP - 571
EP - 596
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - 3-4
ER -