The Behavior of U.S. Short-Term Interest Rates Since 1979-10
Short-term interest rates in the United States have been "too high" since 1979-10 in the sense that both unconditional and conditional forecasts, based on an estimated vector autoregression model summarizing the prior experience, underpredict short-term interest rates during this period. Although a non-structural model cannot directly answer the question of why this has been so, comparisons of alternative conditional forecasts point to the post-1979-10 relationship between the growth of real income and the growth of real money balances as closely connected to the level and pattern of short-term interest rates. This finding is consistent with the authors' macroeconomic model, that the high average level of interest rates has been due to a combination of slow growth of (nominal) money supply and continuing price inflation, which together have kept real balances small in relation to prevailing levels of economic activity.
|Date of creation:||Mar 1986|
|Publication status:||Published in Journal of Finance (July 1984), 39(3): 671-682|
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|Order Information:|| Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA|
References listed on IDEAS
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- Sims, Christopher A, 1980.
"Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered,"
American Economic Review,
American Economic Association, vol. 70(2), pages 250-257, May.
- Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc.
- Richard H. Clarida & Diane Coyle, 1984. "Conditional Projection by Means of Kalman Filtering," Cowles Foundation Discussion Papers 702, Cowles Foundation for Research in Economics, Yale University.
- Richard H. Clarida & Diane Coyle, 1984. "Conditional Projection by Means of Kalman Filtering," NBER Technical Working Papers 0036, National Bureau of Economic Research, Inc.
- Richard H. Clarida & Benjamin M. Friedman, 1983. "Why Have Short-Term Interest Rates Been So High?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 553-586.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
- Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Benjamin M. Friedman, 1977. "The Inefficiency of Short-Run Monetary Targets for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(2), pages 293-346.
- Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164. Full references (including those not matched with items on IDEAS)
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