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Title:The term structure of interest rates when the growth rate is unobservable PDF Logo
Authors:Riedel, Frank
Issue Date:1997
Series/Report no.:Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1997,78
Abstract:The effect of incomplete information on the term structure of interest rates is examined in the framework of a pure exchange economy under uncertainty. When the growth rate of the aggregate endowment is known, the term structure is flat and deterministic. When agents do not observe the (constant) growth rate, interest rates are stochastic and the term structure turns out to be linearly decreasing. As a possible explanation of this astonishing fact, we suggest that rational and risk-averse investors consider long-term bonds as a good hedge against unfavorable realizations of the growth rate.
Subjects:Term Structure of Interest Rates
Incomplete Information
JEL:D5
D9
E4
G1
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10064620
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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