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The Cumulative Unanticipated Change in Interest Rates: Evidence on the Misintermediation Hypothesis

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  • J. Huston McCulloch

Abstract

The term structure of interest rates is carefully analyzed over the period 1947-77 in order to construct a monthly series on cumulative unanticipated changes in long-term interest rates. This series is a sort of synthetic interest rate, changes in which over several months or years represent entirely unanticipated changes in interest rates. The behavior of this series is examined over recognized business fluctuations, and it is found to be actually more reliably pro-cyclic than the raw long-term interest rate, in spite of Kessel's finding that the market tends to correctly predict the direction of change of interest rates over phases. That the series is pro-cyclic supports the hypothesis we have put forward in another paper, that business fluctuations may be caused by "misintermediation", by which we mean the traditional mis-matching of asset and liability maturities on the part of financial intermediaries.

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File URL: http://www.nber.org/papers/w0222.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0222.

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Date of creation: Dec 1977
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Handle: RePEc:nbr:nberwo:0222

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  1. McCulloch, J Hutson, 1975. "The Monte Carlo Cycle in Business Activity," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 303-21, September.
  2. Savin, N Eugene, 1977. "A Test of the Monte Carlo Hypothesis: Comment," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 613-17, October.
  3. McCulloch, J Huston, 1975. "An Estimate of the Liquidity Premium," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 95-119, February.
  4. 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.
  5. Buse, A, 1970. "Expectations, Prices, Coupons and Yields," Journal of Finance, American Finance Association, vol. 25(4), pages 809-18, September.
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Cited by:
  1. J. Huston McCulloch, 2001. "The Inflation Premium implicit in the US Real and Nominal," Computing in Economics and Finance 2001 210, Society for Computational Economics.

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