A Simple Account of the Behavior of Long-Term Interest Rates

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A Simple Account of the Behavior of Long-Term Interest Rates

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Title: A Simple Account of the Behavior of Long-Term Interest Rates
Author: Shiller, Robert; Campbell, John

Note: Order does not necessarily reflect citation order of authors.

Citation: Campbell, John Y., and Robert J. Shiller. 1984. A simple account of the behavior of long-term interest rates. American Economic Review 74, no. 2: 44-48.
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Abstract: Recent empirical research on the term structure of interest rates has shown that the long-term interest rate is well described by a distributed lag on short-term interest rates, but does not conform to the expectations theory of the term structure. It has been suggested that the long rate "overreacts" to the short rate. This paper presents aunified taxonomy of risk premia, or deviations from the expectations theory. This enables the hypothesis of overreaction to be formally stated. It is shown that, if anything, the long rate has underreacted to the short rate. However, the independent movement of the long rate is primarily responsible for the failure of the expectations theory.
Published Version: http://www.jstor.org/stable/1816328
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3208216
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