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GARCH Analyses of Risk and Uncertainty in the Theories of the Interest Rate of Keynes and Kalecki

Author

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  • Hubert Gabrisch

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

This study attempts to identify uncertainty in the long-term rate of interest based on the controversial interest rate theories of Keynes and Kalecki. While Keynes stated that the future of the rate of interest is uncertain because it is numerically incalculable, Kalecki was convinced that it could be predicted. The theories are empirically tested using a reduced-form GARCH-in-mean model assigned to six globally leading financial markets. The obtained results support Keynes’s theory – the long-term rate of interest is a nonergodic financial phenomenon. Analyses of the relation between the interest rate and macroeconomic variables without interest uncertainty are thus seriously incomplete.

Suggested Citation

  • Hubert Gabrisch, 2021. "GARCH Analyses of Risk and Uncertainty in the Theories of the Interest Rate of Keynes and Kalecki," wiiw Working Papers 191, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:191
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    References listed on IDEAS

    as
    1. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(2), pages 209-223.
    2. Markku Lanne & Pentti Saikkonen, 2003. "Modeling the U.S. Short-Term Interest Rate by Mixture Autoregressive Processes," Journal of Financial Econometrics, Oxford University Press, vol. 1(1), pages 96-125.
    3. Chuderewicz, Russell P., 2002. "Using interest rate uncertainty to predict the paper-bill spread and real output," Journal of Economics and Business, Elsevier, vol. 54(3), pages 293-312.
    4. J. Barkley Rosser, 2001. "Alternative Keynesian and Post Keynesian Perspective on Uncertainty and Expectations," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(4), pages 545-566, July.
    5. Tanweer Akram, 2020. "A Note Concerning Government Bond Yields," Economics Working Paper Archive wp_977, Levy Economics Institute.
    6. Paul Davidson, 1982. "Rational Expectations: A Fallacious Foundation for Studying Crucial Decision-Making Processes," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 5(2), pages 182-198, December.
    7. Yasuhiro Sakai, 2016. "J.M. Keynes and F.H. Knight : How to Deal with Risk, Probability and Uncertainty," Discussion Papers CRR Discussion Paper Series A: General 15, Shiga University, Faculty of Economics,Center for Risk Research.
    8. Mandler, Martin, 2007. "The Taylor rule and interest rate uncertainty in the U.S. 1955-2006," MPRA Paper 2340, University Library of Munich, Germany.
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    Cited by:

    1. Tanweer Akram, 2021. "Multifactor Keynesian Models of the Long-Term Interest Rate," Economics Working Paper Archive wp_991, Levy Economics Institute.
    2. Tanweer Akram, 2021. "A Keynesian Approach to Modeling the Long-Term Interest Rate," Economics Working Paper Archive wp_988, Levy Economics Institute.

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    More about this item

    Keywords

    uncertainty; interest rate; Keynes; Kalecki; GARCH;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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