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The Term Structure of Interest Rates and the Demand for Investment

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  • Richard C. Hartman

Abstract

This paper examines the question of whether long-term or short-term interest rates should appear in investment demand functions. Three basic models are examined. The first involves a distribution of time lags required to complete investment projects; the second is based on a simple adjustment-costs model; and the third incorporates uncertainty and risk aversion. The major conclusion is that, except for some special cases which are probably quite unrealistic, both long-term and short-term interest rates affect investment demand.

Suggested Citation

  • Richard C. Hartman, 1980. "The Term Structure of Interest Rates and the Demand for Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(3), pages 591-607.
    • Handle: RePEc:oup:qjecon:v:94:y:1980:i:3:p:591-607.
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