Abstract

http://ssrn.com/abstract=305528
 
 

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Why are Real Interest Rates so High?


Zvi Bodie


Boston University - Department of Finance & Economics

Alex Kane


University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Robert L. McDonald


Northwestern University - Kellogg School of Management

June 1983

NBER Working Paper No. w1141

Abstract:     
This paper applies the Capital Asset Pricing Model to help explain the anomalous behavior of real interest rates during the last several years. Specifically,we are able to show that the increased volatility of bond prices since the change in Federal Reserve operating procedure in October 1979 has substantially increased the required real risk premium on long term bonds. We also consider and reject the possibility that increased risk alone accounts for the recent increase in the short-term real rate. Finally, we use the model to simulate the financial effects of a Federal debt maturity management operation.

Number of Pages in PDF File: 42

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Date posted: July 5, 2004  

Suggested Citation

Bodie, Zvi and Kane, Alex and McDonald, Robert L., Why are Real Interest Rates so High? (June 1983). NBER Working Paper No. w1141. Available at SSRN: http://ssrn.com/abstract=305528

Contact Information

Zvi Bodie (Contact Author)
Boston University - Department of Finance & Economics ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4160 (Phone)
617-353 6667 (Fax)
HOME PAGE: http://smgnet.bu.edu/mgmt/profiles/BodieZvi.html
Alex Kane
University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )
9500 Gilman Drive
La Jolla, CA 92093-0519
United States
Robert L. McDonald
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8344 (Phone)
847-491-5719 (Fax)
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