A survey of empirical studies on the term structure of interest rates

Abstract

The purpose of this paper is to analyze the relevance of recent empirical research on interest rate determination, in which focus is mainly placed on a Keynesian formulation and the more recent theories on the term structure of interest rates, a subject much discussed in economic literature. Despite the volume of literature on the structure of interest rates, very little significant statistical work appears to have been undertaken; at least, the percentage of material that could be described as statistical is very small indeed. In spite of the existence of an extensive literature, stretching at least as far back as Marshall, no really unified, formal, theoretical framework for discussion of the structure of interest rates is available. Ever since the publication of Keynes' «General Theory», economists have been fascinated by the concept of «liquidity preference» and Keynes' new inter-pretation of the forces that determine, to his mind, the long-term rate of interest. Recent contributions on «liquidity-preference» have dealt with both its theoretical and empirical aspects. Very recently, a tendency is becoming apparent to take account of liquidity in a much broader sense. The presence of financial intermediaries outside the commercial banking system has brought this about. An attempt at elaborating on the influence of non-bank-financial intermediaries, via their holding of financial assets in general, on the long-term rate of interest has been made by J. L. Ford and T. Stark. They used the simple Keynesian interest rate determination function substituting the stock of money with weighted liquid assets.