Measuring Interest Rates as Determined by Thrift and Productivity

Woon Gyu Choi

Annals of Economics and Finance, 2007, vol. 8, issue 1, 167-195

Abstract: This paper investigates the behavior of real and nominal interest rates by combining consumption- and production-based models into a single general equilibrium framework. Based on the theoretical nonlinear relationships that link interest rates to both the marginal rates of substitution and transformation in a monetary production economy, our study develops an estimation and simulation procedure to predict historical series of interest rates. We find that the model predictions of interest rates are consistent with U.S. data in many respects. However, the model fails to explain the abnormal drift in real rates in the early 1980s and to deliver the smooth movement of nominal rates at high frequencies.

Keywords: Interest rates; Marginal rate of substitution; Marginal rate of transformation; General equilibrium; Asset pricing (search for similar items in EconPapers)
JEL-codes: C22 E43 (search for similar items in EconPapers)
Date: 2007
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Related works:
Working Paper: Measuring interest rates as determined by thrift and productivity (2005)
Working Paper: Measuring Interest Rates as Determined by Thrift and Productivity (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2007:v:8:i:1:p:167-195

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