The Behavior of U.S. Short-Term Interest Rates Since 1979-10
AbstractShort-term interest rates in the United States have been "too high" since 1979-10 in the sense that both unconditional and conditional forecasts, based on an estimated vector autoregression model summarizing the prior experience, underpredict short-term interest rates during this period. Although a non-structural model cannot directly answer the question of why this has been so, comparisons of alternative conditional forecasts point to the post-1979-10 relationship between the growth of real income and the growth of real money balances as closely connected to the level and pattern of short-term interest rates. This finding is consistent with the authors' macroeconomic model, that the high average level of interest rates has been due to a combination of slow growth of (nominal) money supply and continuing price inflation, which together have kept real balances small in relation to prevailing levels of economic activity.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 695.
Length: 20 pages
Date of creation: Mar 1986
Date of revision:
Publication status: Published in Journal of Finance (July 1984), 39(3): 671-682
Note: CFP 596.
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Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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