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Reexamining the term structure of interest rates and the interwar demand for money

  • Christopher Baum
  • Clifford Thies

This paper reexamines whether the term structure of interest rates, rather than merely a single interest rate, should be included in the demand for money of the interwar era. In contrast to earlier work, we use cointegration techniques to model the equilibrium/error correction process, and find that a sufficiently rich dynamic model using a single interest rate has considerable explanatory power. Nevertheless, we conclude that the inclusion of the term structure may help to explain the turbulent monetary dynamics of the Depression era. Copyright Springer 1998

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File URL: http://hdl.handle.net/10.1007/BF02771472
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Article provided by Springer in its journal Journal of Economics and Finance.

Volume (Year): 22 (1998)
Issue (Month): 2 (June)
Pages: 5-12

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Handle: RePEc:spr:jecfin:v:22:y:1998:i:2:p:5-12
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  1. Baum, Christopher F & Thies, Clifford F, 1992. "On the Construction of Monthly Term Structures of U.S. Interest Rates, 1919-1930," Computer Science in Economics & Management, Society for Computational Economics, vol. 5(3), pages 221-46, August.
  2. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
  3. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, August.
  4. Clifford F. Thies, 1985. "New Estimates Of The Term Structure Of Interest Rates: 1920–1939," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 8(4), pages 297-306, December.
  5. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, August.
  6. W. Braddock Hickman, 1960. "Statistical Measures of Corporate Bond Financing Since 1900," NBER Books, National Bureau of Economic Research, Inc, number hick60-1, August.
  7. Friedman, Milton, 1977. " Time Perspective in Demand for Money," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 397-416.
  8. 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.
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