NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Martin D. Evans, Paul Wachtel

NBER Working Paper No. 3245*
Issued in January 1990
NBER Program(s):   ME

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.

*Published: Evans, Martin and Paul Wachtel. "Interpreting The Movements In Short-Term Interest Rates," Journal of Business, 1992, v65(3), 395-430.

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