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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