Economics, Econometrics and Finance
4 years ago

Interest Rate Volatility Linked to Real Business Cycle Models.

SSRN Electronic Journal
What is the Real Story for Interest Rate Volatility?
Andreas Hornstein, Harald Uhlig

Paper Summary

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Interest rate volatility is not just due to monetary policy. Two models show real rate fluctuations similar to real data, matching business cycle facts. The first model includes habit formation and capital adjustment costs, while the second model involves planning and building capital over time.