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A Modern Look At Asset Pricing and Short-Term Interest Rates

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  • Martin D. Evans
  • Paul Wachtel

Abstract

This paper uses modern asset pricing theory to examine the behavior of short-term nominal interest rates over the past 25 years. The analysis investigates whether variation in the stochastic behavior of output and inflation can explain movements in the rate of interest. Our results reveal that much of the month to month movement in nominal interest rates reflects changes in the real rate and the risk premia rather than inflationary expectations.

Suggested Citation

  • Martin D. Evans & Paul Wachtel, 1990. "A Modern Look At Asset Pricing and Short-Term Interest Rates," NBER Working Papers 3245, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3245
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    Cited by:

    1. repec:adr:anecst:y:1991:i:24:p:01 is not listed on IDEAS
    2. Keshab Shrestha & Sheng‐Syan Chen & Cheng‐few Lee, 2002. "Are Expected Inflation Rates and Expected Real Rates Negatively Correlated? A Long‐Run Test of the Mundell‐Tobin Hypothesis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(3), pages 305-320, September.
    3. Tim Bollerslev & Ray Y. Chou & Narayanan Jayaraman & Kenneth F. Kroner - L, 1991. "es modéles ARCH en finance : un point sur la théorie et les résultats empiriques," Annals of Economics and Statistics, GENES, issue 24, pages 1-59.
    4. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.

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