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What is the Real Story for Interest Rate Volatility?

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  • Andreas Hornstein
  • Harald Uhlig

Abstract

What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle facts. The second model also replicates the cyclical behavior of real interest rates. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2000.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1468-0475.00004
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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 1 (2000)
Issue (Month): 1 (02)
Pages: 43-67

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Handle: RePEc:bla:germec:v:1:y:2000:i:1:p:43-67

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References

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Cited by:
  1. Scheffel, Eric, 2008. "Consumption Velocity in a Cash Costly-Credit Model," Cardiff Economics Working Papers E2008/31, Cardiff University, Cardiff Business School, Economics Section.
  2. Santiago Budría, 2008. "An Exploration of Asset Returns in a Production Economy with Relative Habits," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(3), pages 261-274, September.

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