TY  - JOUR
AU  - Bodie,Zvi
AU  - Kane,Alex
AU  - McDonald,Robert L.
TI  - Why Are Real Interest Rates So High?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1141
PY  - 1984
Y2  - July 1984
UR  - http://www.nber.org/papers/w1141
L1  - http://www.nber.org/papers/w1141.pdf
N1  - Author contact info:
Zvi Bodie
School of Management, room 534
Boston University
595 Commonwealth Ave.
Boston, MA   02215
Tel: 617-353-4160
E-Mail: zbodie@bu.edu

Alex Kane
Graduate School of IRPS/D-019
University of California, San Diego
La Jolla, CA   92093-0519
Tel: 619/534-5969
E-Mail: akane@ucsd.edu

Robert L. McDonald
Department of Finance  Jacobs Center
Northwestern University
2001 Sheridan Rd.
Evanston, IL  60208-2006
Tel: 847-491-8344
Fax: 847-491-5719
E-Mail: r-mcdonald@northwestern.edu
AB  - This paper applies the Capital Asset Pricing Model to help explain the anomalous behavior of real interest rates during the last several years. Specifically,we are able to show that the increased volatility of bond prices since the change in Federal Reserve operating procedure in October 1979 has substantially increased the required real risk premium on long term bonds. We also consider and reject the possibility that increased risk alone accounts for the recent increase in the short-term real rate. Finally, we use the model to simulate the financial effects of a Federal debt maturity management operation.
ER  -