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Heterogeneous Time Preferences and Interest Rates - The Preferred Habitat Theory Revisited

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  • Frank Riedel

    (Humboldt University at Berlin)

Abstract

The influence of heterogeneous time preferences on the term structure is investigated. Motivated by the Preferred Habitat Theory of Modigliani and Sutch, a model for intertemporal preferences accounting for preferred habitats is proposed. In a heterogeneous world, preferred habitats can explain humps in the yield curve. Agents with a long habitat prefer long term bonds to shorter instruments as the Preferred Habitat Theory predicts.

Suggested Citation

  • Frank Riedel, 1999. "Heterogeneous Time Preferences and Interest Rates - The Preferred Habitat Theory Revisited," Finance 9903001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9903001
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    References listed on IDEAS

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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