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Measuring Interest Rates as Determined by Thrift and Productivity

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  • Choi, Woon Gyu

    (Hong Kong University of Science and Technology)

  • Wen, Yi

    (Cornell University)

Abstract

This paper investigates the behavior of short-term real and nominal rates of interest by combining consumption-based and production-based models into a single general equilibrium framework. Based on the theoretical nonlinear relationships that link interest rates to both the marginal rates of substitution and transformation in a monetary production economy, we develop an estimation and simulation procedure to generate historical time series of interest rates. We find that the predictions of interest rates based on a general equilibrium theory are partially consistent with US data.

Suggested Citation

  • Choi, Woon Gyu & Wen, Yi, 2000. "Measuring Interest Rates as Determined by Thrift and Productivity," Working Papers 00-03, Cornell University, Center for Analytic Economics.
    • Handle: RePEc:ecl:corcae:00-03
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    File URL: https://cae.economics.cornell.edu/choi_wen.pdf
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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