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Reexamining the Term Structure of Interest Rates and the Interwar Demand for Money

Author

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  • Christopher F. Baum

    () (Boston College)

  • Clifford F. Thies

    () (Shenandoah University)

Abstract

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.

Suggested Citation

  • Christopher F. Baum & Clifford F. Thies, 1997. "Reexamining the Term Structure of Interest Rates and the Interwar Demand for Money," Boston College Working Papers in Economics 384, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:384
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    File URL: http://fmwww.bc.edu/EC-P/wp384.pdf
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    References listed on IDEAS

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    1. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    2. 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.
    3. 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.
    4. W. Braddock Hickman, 1960. "Statistical Measures of Corporate Bond Financing Since 1900," NBER Books, National Bureau of Economic Research, Inc, number hick60-1.
    5. Hafer, R. W., 1985. "The stability of the short-run money demand function, 1920-1939," Explorations in Economic History, Elsevier, vol. 22(3), pages 271-295, July.
    6. Friedman, Milton, 1977. " Time Perspective in Demand for Money," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(4), pages 397-416.
    7. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    8. 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.
    9. 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, Kluwer;Society for Computational Economics, vol. 5(3), pages 221-246, August.
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    1. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9358-6 is not listed on IDEAS

    More about this item

    Keywords

    demand for money; interwar period; term structure of interest rates;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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