Financial Flow Variables and the Short-Run Determination of Long-Term Interest Rates
AbstractBecause transactions costs are smaller for allocating new cash flows than for reallocating existing asset holdings, financial flow variables are important determinants of investors' short-run asset demands. The demand-for-bonds equations implied by the resulting "optimal marginal adjustment" model of portfolio behavior constitute the demand side of a structural supply-demand model of the determination of the long-term interest rate. Empirical results, based on demand-for-bonds equations estimated using U.S. data for six major categories of bond market investors, support the optimal marginal adjustment model and show that the associated structural model of interest rate determination, which is restricted by the underlying demand-for-bonds equations, fits the data about as well as do previously developed unrestricted reduced-form term-structure equations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4554309.
Date of creation: 1977
Date of revision:
Publication status: Published in Journal of Political Economy -Chicago-
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brundy, James M & Jorgenson, Dale W, 1971. "Efficient Estimation of Simultaneous Equations by Instrumental Variables," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 207-24, August.
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- Feldstein, Martin S & Eckstein, Otto, 1970. "The Fundamental Determinants of the Interest Rate," The Review of Economics and Statistics, MIT Press, vol. 52(4), pages 363-75, November.
- Feldstein, Martin S & Chamberlain, Gary, 1973. "Multimarket Expectations and the Rate of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 5(4), pages 873-902, November.
- Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
- James M. Brundy & Dale W. Jorgenson, 1971. "Efficient estimation of simultaneous equations by instrumental variables," Working Papers in Applied Economic Theory 3, Federal Reserve Bank of San Francisco.
- Ladenson, Mark L, 1971. "Pitfalls in Financial Model Building: Some Extensions," American Economic Review, American Economic Association, vol. 61(1), pages 179-86, March.
- Friedman, Benjamin M, 1971. "Econometric Simulation Difficulties: An Illustration," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 381-84, November.
- Fair, Ray C & Malkiel, Burton G, 1971. "The Determination of Yield Differentials between Debt Instruments of the Same Maturity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(4), pages 733-49, November.
- Reuben A. Kessel, 1971. "The Cyclical Behavior of the Term Structure of Interest Rates," NBER Chapters, in: Essays on Interest Rates, Vol. 2, pages 337-390 National Bureau of Economic Research, Inc.
- Christopher J. Green & Victor Murinde, 2003. "Flow of funds: implications for research on financial sector development and the real economy," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 1015-1036.
- Byeongseon Seo, 2000. "Nonlinear Mean Reversion In The Term Structure Of Interest Rates," Computing in Economics and Finance 2000 121, Society for Computational Economics.
- De Broeck, Mark, 1997. "The financial structure of government debt in OECD countries: An examination of the time-consistency issue," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 279-301, July.
- Seo, Byeongseon, 2003. "Nonlinear mean reversion in the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2243-2265, September.
- V. Vance Roley, 1986. "Money Demand Predictability," NBER Working Papers 1580, National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 1986. "A Test of Portfolio Crowding-Out and Related Issues in Finance," NBER Working Papers 1205, National Bureau of Economic Research, Inc.
- David G. Hartman, 1980. "International Effects on the U.S. Capital Market," NBER Working Papers 0581, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard, 1987. "Social Security and Household Portfolio Allocation," NBER Working Papers 1361, National Bureau of Economic Research, Inc.
- V. Vance Roley, 1980. "A Disaggregated Structural Model of the Treasury Securities, Corporate Bond, and Equity Markets: Estimation and Simulation Results," NBER Technical Working Papers 0007, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman, 1978. "Who Puts the Inflation Premium Into Nominal Interests Rates?," NBER Working Papers 0231, National Bureau of Economic Research, Inc.
- Yvon Fauvel & Alain Paquet & Christian Zimmermann, 1999. "A Survey on Interest Rate Forecasting," Cahiers de recherche CREFE / CREFE Working Papers 87, CREFE, Université du Québec à Montréal.
- Benjamin M. Friedman, 1980. "Price Inflation, Portfolio Choice, and Nominal Interest Rates," NBER Working Papers 0235, National Bureau of Economic Research, Inc.
- Park, Chul Woo, 1999. "Maturity structure of public debt and expected bond returns," Journal of Banking & Finance, Elsevier, vol. 23(9), pages 1407-1435, September.
- Benjamin M. Friedman, 1980. "How Important is Disaggregation in Structural Models of Interest Rate Determination?," NBER Working Papers 0294, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman, 1983. "The Substitutability Of Debt And Equity Securities," NBER Working Papers 1130, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman, 1983. "Federal Reserve Policy, Interest Rate Volatility, and the U.S. Capital Raising Mechanism," NBER Working Papers 0917, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman & V. Vance Roley, 1981. "Structural Models of Interest Rate Determination and Portfolio Behavior in the Corporate and Government Bond Markets," NBER Working Papers 0205, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman, 1980. "Effects of Shifting Saving Patterns on Interest Rates and Economic Activity," NBER Working Papers 0587, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reinhard Engels).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.