IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1141.html
   My bibliography  Save this paper

Why Are Real Interest Rates So High?

Author

Listed:
  • Zvi Bodie
  • Alex Kane
  • Robert L. McDonald

Abstract

This paper applies the Capital Asset Pricing Model to help explain the anomalous behavior of real interest rates during the last several years. Specifically,we are able to show that the increased volatility of bond prices since the change in Federal Reserve operating procedure in October 1979 has substantially increased the required real risk premium on long term bonds. We also consider and reject the possibility that increased risk alone accounts for the recent increase in the short-term real rate. Finally, we use the model to simulate the financial effects of a Federal debt maturity management operation.

Suggested Citation

  • Zvi Bodie & Alex Kane & Robert L. McDonald, 1983. "Why Are Real Interest Rates So High?," NBER Working Papers 1141, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1141
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1141.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Lintner, John, 1969. "The Aggregation of Investor's Diverse Judgments and Preferences in Purely Competitive Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(04), pages 347-400, December.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-227, May.
    4. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1981. "A Re-examination of Traditional Hypotheses about the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 36(4), pages 769-799, September.
    5. Zvi Bodie, 1979. "Inflation Risk and Capital Market Equilibrium," NBER Working Papers 0373, National Bureau of Economic Research, Inc.
    6. Pindyck, Robert S, 1984. "Risk, Inflation, and the Stock Market," American Economic Review, American Economic Association, vol. 74(3), pages 335-351, June.
    7. Irwin Friend & Joel Hasbrouck, "undated". "Effect of Inflation on the Profitability and Valuation of U.S. Corporations," Rodney L. White Center for Financial Research Working Papers 4-82, Wharton School Rodney L. White Center for Financial Research.
    8. Zvi Bodie & Alex Kane & Robert McDonald, 1985. "Inflation and the Role of Bonds in Investor Portfolios," NBER Chapters,in: Corporate Capital Structures in the United States, pages 167-196 National Bureau of Economic Research, Inc.
    9. Roley, V Vance, 1979. "A Theory of Federal Debt Management," American Economic Review, American Economic Association, vol. 69(5), pages 915-926, December.
    10. V. Vance Roley, 1982. "The Effect of Federal Debt-Management Policy on Corporate Bond and Equity Yields," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 645-668.
    11. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 211-228.
    2. Alex Kane & Leonard Rosenthal, 1985. "Efficient Inflation Forecasts: An International Comparison," NBER Working Papers 1542, National Bureau of Economic Research, Inc.
    3. Pindyck, Robert S, 1988. "Risk Aversion and Determinants of Stock Market Behavior," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 183-190, May.
    4. Jeffrey A. Frankel, 1983. "A Test of Portfolio Crowding-Out and Related Issues in Finance," NBER Working Papers 1205, National Bureau of Economic Research, Inc.
    5. Ray Chou & Robert F. Engle & Alex Kane, 1991. "Measuring Risk Aversion From Excess Returns on a Stock Index," NBER Working Papers 3643, National Bureau of Economic Research, Inc.
    6. John A. Tatom, 1984. "Interest rate variability: its link to the variability of monetary growth and economic performance," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 31-47.
    7. Koedijk, Kees & Kool, Clemens & Nissen, Francois, 1998. "Real interest rates and shifts in macroeconomic volatility," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 241-261, September.
    8. Bradford Cornell, 1986. "Inflation Measurement, Inflation Risk, And The Pricing Of Treasury Bills," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(3), pages 193-202, September.
    9. W. Jos Jansen, 1998. "The mean-variance model with capital controls and expectations formation. A test on German portfolio data," Applied Financial Economics, Taylor & Francis Journals, vol. 8(4), pages 333-346.
    10. Alex Kane & Young Ki Lee, 1983. "The Forecasting Ability of Money Market Fund Managers and its Economic Value," NBER Working Papers 1243, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1141. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.