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.

Spot Rate Models 3 Equivalent Martingale Measure (Reference Only) . . . . . . . . . . . . . . . . . . 3 Spot Rate Models: Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Bond Price Equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Inversion of the Yield Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Affine Term Structure Mo...

The Geske-Johnson approach provides an e cient and intuitively appealing technique for the valuation and hedging of American-style contingent claims. Here, we generalize their approach to a stochastic-interest-rate economy. The method is implemented using options exercisable on one of a nite number of dates. We illustrate how the value of an American-style option increases with interest-rate vo...

Abstract We study finite-maturity American equity options in a stochastic mean-reverting diffusive interest rate framework. allow for non-zero correlation between the innovations driving price and rate. Importantly, we also to assume negative values, which is case some investment grade government bonds Europe recent years. In this setting focus on call put characterize analytically their two-di...