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AGGREGATE DEMAND AND INTEREST RATES: A MACROECONOMIC APPROACH TO THE TERM STRUCTURE
Author(s) -
MCCAFFERTY STEPHEN
Publication year - 1986
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1986.tb01831.x
Subject(s) - economics , speculation , yield curve , shock (circulatory) , interest rate , monetary economics , term (time) , aggregate demand , investment (military) , bond , outcome (game theory) , demand for money , microeconomics , aggregate (composite) , econometrics , monetary policy , macroeconomics , finance , medicine , physics , quantum mechanics , politics , political science , materials science , composite material , law
This paper develops a model in which the term‐structure of interest rates obtains as an equilibrium outcome of the interactions of firms, households and rationally informed speculators. Exogenous disturbances whose impact effects fall only in the market for short‐term bonds generate equilibrium movements in the yield on long‐term bonds and the level of investment spending. In the case of risk‐averse speculators, a purely transitory, unanticipated shock to the money supply generates a long distributed‐lag effect on the level of aggregate demand.