The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates during the Great Depression

Stephen Cecchetti

Journal of Political Economy, 1988, vol. 96, issue 6, 1111-41

Abstract: Throughout the 1930s and early 1940s, U.S. Treasury bonds and notes appeared to have negative nominal yields as they approached maturity. But negative nominal interest rates are impossible in a world in which one can always hold cash. The resolution to this puzzle is that Treasury securities, in addition to making coupon payments, gave the owner the right to buy a new security on a future date. This paper describes the institutional environment that led to the apparent negative nominal interest rates; develops a method for valuing the "exchange privilege"; and computes accurate measures of the yield to the coupon-bearing component of these composite bond/options. Copyright 1988 by University of Chicago Press.

Date: 1988
References: Add references at CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://dx.doi.org/10.1086/261580 full text (application/pdf)
Access to full text is restricted to subscribers. See http://www.journals.uchicago.edu/JPE for details.

Related works:
Working Paper: The Case of the Negative Nominal Interest Rates: New Estimates of the Term Structure of Interest Rates During the Great Depression (1987)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:96:y:1988:i:6:p:1111-41

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().