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The Cumulative Unanticipated Change in Interest Rates: Evidence on the Misintermediation Hypothesis

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  • J. Huston McCulloch

Abstract

The term structure of interest rates is carefully analyzed over the period 1947-77 in order to construct a monthly series on cumulative unanticipated changes in long-term interest rates. This series is a sort of synthetic interest rate, changes in which over several months or years represent entirely unanticipated changes in interest rates. The behavior of this series is examined over recognized business fluctuations, and it is found to be actually more reliably pro-cyclic than the raw long-term interest rate, in spite of Kessel's finding that the market tends to correctly predict the direction of change of interest rates over phases. That the series is pro-cyclic supports the hypothesis we have put forward in another paper, that business fluctuations may be caused by "misintermediation", by which we mean the traditional mis-matching of asset and liability maturities on the part of financial intermediaries.

Suggested Citation

  • J. Huston McCulloch, 1977. "The Cumulative Unanticipated Change in Interest Rates: Evidence on the Misintermediation Hypothesis," NBER Working Papers 0222, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0222
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    1. F. A. Lutz, 1940. "The Structure of Interest Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 55(1), pages 36-63.
    2. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
    3. Phillip Cagan, 1969. "The Influence of Interest Rates on the Duration of Business Cycles," NBER Chapters, in: Essays on Interest Rates, Volume 1, pages 3-28, National Bureau of Economic Research, Inc.
    4. McCulloch, J Huston, 1975. "An Estimate of the Liquidity Premium," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 95-119, February.
    5. Buse, A, 1970. "Expectations, Prices, Coupons and Yields," Journal of Finance, American Finance Association, vol. 25(4), pages 809-818, September.
    6. McCulloch, J Hutson, 1975. "The Monte Carlo Cycle in Business Activity," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 303-321, September.
    7. McCulloch, J Huston, 1977. "The Monte Carlo Hypothesis: Reply," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 618-618, October.
    8. Savin, N Eugene, 1977. "A Test of the Monte Carlo Hypothesis: Comment," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 613-617, October.
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    Cited by:

    1. Guo, Feng & McCulloch, J.H., 2017. "Heterogeneous capital and misintermediation," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 16-41.
    2. J. Huston McCulloch, 2001. "The Inflation Premium implicit in the US Real and Nominal," Computing in Economics and Finance 2001 210, Society for Computational Economics.
    3. James M. Steeley, 2008. "Testing Term Structure Estimation Methods: Evidence from the UK STRIPS Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1489-1512, October.

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