A Modern Look At Asset Pricing and Short-Term Interest Rates
NBER Working Paper No. 3245
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.