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Reexamining the Term Structure of Interest Rates and the Interwar Demand for Money

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  • Christopher F. Baum

    ()
    (Boston College)

  • Clifford F. Thies

    ()
    (Shenandoah University)

Abstract

This paper reexamines whether the term structure of interest rates, rather than merely a single interest rate, should be included in the demand for money of the interwar era. In contrast to earlier work, we use cointegration techniques to model the equilibrium/error correction process, and find that a sufficiently rich dynamic model using a single interest rate has considerable explanatory power. Nevertheless, we conclude that the inclusion of the term structure may help to explain the turbulent monetary dynamics of the Depression era.

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File URL: http://fmwww.bc.edu/EC-P/wp384.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 384.

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Length: 17 pages
Date of creation: 01 Sep 1997
Date of revision:
Publication status: published, Journal of Economics and Finance, 1998, 22:2-3, 5-12.
Handle: RePEc:boc:bocoec:384

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Phone: 617-552-3670
Fax: +1-617-552-2308
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Web page: http://fmwww.bc.edu/EC/
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Keywords: demand for money; interwar period; term structure of interest rates;

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  1. Friedman, Milton, 1977. " Time Perspective in Demand for Money," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 397-416.
  2. Baum, Christopher F & Thies, Clifford F, 1992. "On the Construction of Monthly Term Structures of U.S. Interest Rates, 1919-1930," Computer Science in Economics & Management, Society for Computational Economics, vol. 5(3), pages 221-46, August.
  3. W. Braddock Hickman, 1960. "Statistical Measures of Corporate Bond Financing Since 1900," NBER Books, National Bureau of Economic Research, Inc, number hick60-1.
  4. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
  5. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
  6. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
  7. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
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