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Production and the Real Rate of Interest: A Sample Path Equilibrium

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  • David Feldman

Abstract

This paper examines a multiperiod production economy where investors do not observe the realizations of productivity factors or security expected returns. Unlike previous work, which expresses the equilibrium conditions as functions of unobservable (to both real-world investors and empiricists) moments of the distributions of returns, we express the equilibrium real rate as a function of the observable sample paths of realizations of returns. We provide a framework for empirically testing this and other asset pricing models without outside-the-model econometric assumptions needed for producing the unobservable moments of returns. We construct versions of the restrictions for any time interval between observations. JEL classification codes: E43, G12, D92, D80, D51.

Suggested Citation

  • David Feldman, 2002. "Production and the Real Rate of Interest: A Sample Path Equilibrium," Review of Finance, European Finance Association, vol. 6(2), pages 247-275.
    • Handle: RePEc:oup:revfin:v:6:y:2002:i:2:p:247-275.
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    File URL: http://hdl.handle.net/10.1023/A:1020187803012
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    Cited by:

    1. Lundtofte, Frederik, 2008. "Expected life-time utility and hedging demands in a partially observable economy," European Economic Review, Elsevier, vol. 52(6), pages 1072-1096, August.
    2. David Feldman, 2007. "Incomplete information equilibria: Separation theorems and other myths," Annals of Operations Research, Springer, vol. 151(1), pages 119-149, April.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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