The Term Structure of Interest Rates whenthe Growth Rate is
نویسنده
چکیده
The eeect of incomplete information on the term structure of interest rates is examined in the framework of a pure exchange economy under uncertainty. When the growth rate of the aggregate endowment is known, the term structure is at and deterministic. When agents do not observe the (constant) growth rate, interest rates are stochas-tic and the term structure turns out to be linearly decreasing. As a possible explanation of this astonishing fact, we suggest that rational and risk-averse investors consider long-term bonds as a good hedge against unfavorable realizations of the growth rate.
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