The Quality of Public Information and The Term Structure of Interest Rates
AbstractThis paper analyzes the term structure of interest rates in an exchangeonly Lucas (1978) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We show that there is a premium for noisy external public information in long-term bonds. In contrast to Feldman (1989), where agents learn only through realized outputs, we find that nonstochastic interest rates are not necessary for the expectations hypothesis to hold.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 06-24.
Length: 27 pages
Date of creation: Feb 2006
Date of revision: Sep 2006
learning; information quality; incomplete information; term structure of interest rates;
Other versions of this item:
- Frederik Lundtofte, 2013. "The quality of public information and the term structure of interest rates," Review of Quantitative Finance and Accounting, Springer, vol. 40(4), pages 715-740, May.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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