Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their more slowly and less completely short-term market decreases than increases. We investigate the macroeconomic consequences of this interest rate rigidity by introducing asymmetric adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating model euro area economy, w...

the paper investigates the effects of interest rates on stock market performance by using monthly time series data for the economy of bangladesh over the period of 1991 to 2012. a wide range of econometric techniques have been employed to analyze the relationship between the interest rate and stock market return. the study reveals a stable and significant long run relationship between the varia...

In this article we will describe some of the main developments in interest-rate modelling since Black & Scholes’ (1973) and Merton’s (1973) original articles on the pricing of equity derivatives. In particular, we will focus on continuoustime, arbitrage-free models for the full term structure of interest rates. Other models which model a limited number of key interest rates or which operate in ...

We price moneyness-based portfolio returns on the LIBOR futures options in an Intertemporal CAPM framework as an extension of the pricing kernel approach. In contrast to existing studies for pricing index options, our results show that only the real interest rate is significant in the pricing kernel for LIBOR options. The polynomial pricing kernel with linear interpretation outperforms the iso-...

To be added.] ∗This is a revision of the text delivered by the second author as the Jacob Marschak Lecture at the 2001 Far Eastern Meeting of the Econometric Society, Kobe, Japan, July 21, 2001. We thank Julio Rotemberg and Lars Svensson for helpful discussions, and the National Science Foundation, through a grant to the NBER, for research support. Views expressed are those of the authors and d...

A growing empirical and theoretical literature argues in favor of specifying monetary policy in the form of Taylor-type interest rate feedback rules. That is, rules whereby the nominal interest rate is set as an increasing function of inflation with a slope greater than one around an intended inflation target. This paper shows that because of the zero bound on nominal interest rates, such rules...

The stock versus flow effect of the federal debt/deficit on a real interest rate is examined in a reduced-form equation. The evidence shows a positive and significant linkage between the federal debt and an ex-post, taxadjusted, short-term, real interest rate.