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A note on the notions of risk-premium and liquidity-premium in Hicks's and Keynes's analyses of the term structure of interest rates

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  • Luca Fantacci
  • Maria Cristina Marcuzzo
  • Eleonora Sanfilippo

Abstract

While in Hicks's analysis there is the idea of a yield curve normally upward sloping, Keynes does not appear to envisage a systematic positive spread between long-term and short-term interest rates. This is mainly due a difference in their notions of liquidity, and in particular to Keynes's disbelief in the possibility of quantifying the premium required to induce investors to hold long-term rather than short-term assets. It follows that Hicks's and Keynes's explanations of the term structure are neither identical nor can be assimilated to the notion of 'preferred habitat', as suggested in some literature.

Suggested Citation

  • Luca Fantacci & Maria Cristina Marcuzzo & Eleonora Sanfilippo, 2014. "A note on the notions of risk-premium and liquidity-premium in Hicks's and Keynes's analyses of the term structure of interest rates," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(6), pages 1102-1108, December.
    • Handle: RePEc:taf:eujhet:v:21:y:2014:i:6:p:1102-1108
    DOI: 10.1080/09672567.2014.972637
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    Cited by:

    1. Lucy Brillant, 2018. "Limits to Arbitrage and Interest Rates: a Debate Between Keynes, Hawtrey and Hicks," Post-Print hal-01696253, HAL.
    2. BRILLANT, Lucy, 2024. "The origins of yield curve theory: Irving Fisher and John Maynard Keynes," SocArXiv 9hf8z, Center for Open Science.

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