 A reconsideration of the role of forward-market arbitrage in Keynes' and Hicks' theories of the term structure of interest ratesLucy Brillant The European Journal of the History of Economic Thought, 2014, vol. 21, issue 6, 1085-1101 Abstract: This paper develops the relationship between Hicks' and Keynes' writings on the theory of the term structure of interest rates, and shows in detail how Hicks built on and extended Keynes' account. According to this theory, the level of the long-term interest rate is determined by expectations of future short-term rates. Keynes' thinking contained several notions - such as the preferred habitat of lenders, the theory of forward markets, and risk premiums - which Hicks used to give a more complete theory of the term structure of interest rates. Besides implementing these notions in his own theory, Hicks introduced the concepts of the preferred habitat of borrowers, the liquidity risk premium, and arbitrageurs who can take advantage of spreads between spot and forward rates and eliminate risk premiums. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eujhet:v:21:y:2014:i:6:p:1085-1101 Ordering information: This journal article can be ordered from DOI: 10.1080/09672567.2014.972425 Access Statistics for this article The European Journal of the History of Economic Thought is currently edited by José Luís Cardoso More articles in The European Journal of the History of Economic Thought from Taylor & Francis Journals |
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