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Measuring Interest Rates as Determined by Thrift and Productivity

  • Choi, Woon Gyu

    (Hong Kong University of Science and Technology)

  • Wen, Yi

    (Cornell University)

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.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 00-03.

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Date of creation: Jan 2000
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Handle: RePEc:ecl:corcae:00-03
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