Interest Rates

Term Structure of Interest Rates

The Yield Curve

The yield curve [show graphic] depicts the yield-to-maturity for securities (bonds) vs. the time to maturity.

The Expectations Hypothesis

(1+RL_{t})=(1+RS_{t})(1+RS^{e}_{t+1})

The Forward Rate

(1+RL_{t})=(1+RS_{t})(1+RS^{f}_{t+1})

calculate vs. expectation

Risk Premium

Keynesian Models

The Keynesian IS/LM Model with in its most basic form assumes that one interest rate is relevant for the IS Curve and the LM Curve. These interest rates are, in reality, the long-term interest rate and the short-term interest rate.

The Empirical Evidence

Reference

Reading the Yield Curve, James Hamilton.

Yield Curves,
The Econ Review, William R. Parke.

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