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The Term Structure of Interest Rates

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Author Info
Robert J. Shiller
J. Huston McCulloch

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Abstract

This paper consolidates and interprets the literature on the term structure, as it stands today. Definitions of rates of return, forward rates and holding returns for all time intervals are treated here in a uniform manner and their interrelations, exact or approximate, delineated. The concept of duration is used throughout to simplify mathematical expressions. Continuous compounding is used where possible, to avoid arbitrary distinctions based on compounding assumptions. Both the theoretical and the empirical literature are treated. The attached tables by J. Huston McCulloch give term structure data for U. S. government securities 1946-1987. The tables give discount bond yields, forward rates and par bond yields as defined in the paper. The data relate to the concepts in the paper more precisely than does any previously published data series.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2341.

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Date of creation: Aug 1987
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Publication status: published as Benjamin Friedman and Frank Hahn, eds., Handbook of Monetary Economics, North Holland 1980
Handle: RePEc:nbr:nberwo:2341

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References listed on IDEAS
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  1. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December. [Downloadable!] (restricted)
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  5. N. Gregory Mankiw, 1986. "The Term Structure of Interest Rates Revisited," NBER Reprints 0777, National Bureau of Economic Research, Inc.
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  6. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1984-1), pages 223-248. [Downloadable!]
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  7. Stiglitz, Joseph E, 1970. "A Consumption-Oriented Theory of the Demand for Financial Assets and the Term Structure of Interest Rates," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 321-51, July. [Downloadable!] (restricted)
  8. Amsler, Christine, 1984. "A "Pure" long-term interest rate and the demand for money," Journal of Economics and Business, Elsevier, vol. 36(3), pages 359-370, August. [Downloadable!] (restricted)
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  10. Kane, Edward J, 1980. " Market Incompleteness and Divergences between Forward and Future Interest Rates," Journal of Finance, American Finance Association, vol. 35(2), pages 221-34, May. [Downloadable!] (restricted)
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  16. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-74, May. [Downloadable!] (restricted)
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  22. Sanford J. Grossman & Angelo Melino & Robert J. Shiller, 1985. "Estimating the Continuous Time Consumption Based Asset Pricing Model," NBER Working Papers 1643, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April. [Downloadable!] (restricted)
  25. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Cowles Foundation Discussion Papers 667, Cowles Foundation, Yale University. [Downloadable!]
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  26. Long, John Jr., 1974. "Stock prices, inflation, and the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 1(2), pages 131-170, July. [Downloadable!] (restricted)
  27. L. G. Telser, 1967. "A Critique of Some Recent Empirical Research on the Explanation of the Term Structure of Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 75, pages 546. [Downloadable!] (restricted)
  28. Hopewell, Michael H & Kaufman, George G, 1973. "Bond Price Volatility and Term to Maturity: A Generalized Respecification," American Economic Review, American Economic Association, vol. 63(4), pages 749-53, September. [Downloadable!] (restricted)
  29. Campbell, John Y & Shiller, Robert J, 1984. "A Simple Account of the Behavior of Long-Term Interest Rates," American Economic Review, American Economic Association, vol. 74(2), pages 44-48, May. [Downloadable!] (restricted)
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  30. Keim, Donald B. & Stambaugh, Robert F., 1986. "Predicting returns in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 17(2), pages 357-390, December. [Downloadable!] (restricted)
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  31. Pesando, James E, 1975. "Determinants of Term Premiums in the Market for United States Treasury Bills," Journal of Finance, American Finance Association, vol. 30(5), pages 1317-27, December. [Downloadable!] (restricted)
  32. Marsh, Terry A & Rosenfeld, Eric R, 1983. " Stochastic Processes for Interest Rates and Equilibrium Bond Prices," Journal of Finance, American Finance Association, vol. 38(2), pages 635-46, May. [Downloadable!] (restricted)
  33. 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. [Downloadable!] (restricted)
  34. Kane, Edward J, 1970. "The Term Structure of Interest Rates: An Attempt to Reconcile Teaching with Practice," Journal of Finance, American Finance Association, vol. 25(2), pages 361-74, May. [Downloadable!] (restricted)
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