Multifactor Keynesian Models of the Long-Term Interest Rate

Tanweer Akram

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper presents multifactor Keynesian models of the long-term interest rate. In recent years there have been a proliferation of empirical studies based on the Keynesian approach to interest rate modeling. However, standard multifactor models of the long-term interest rate in quantitative finance have not been yet incorporated Keynes's insights about interest rate dynamics. Keynes's insights about the influence of the current short-term interest rate are introduced in two different multifactor models of the long-term interest rate to illustrate how the long-term interest rate relates to the short-term interest rate, the central bank's policy rate, inflation expectations, the central bank's inflation target, volatility in financial markets, and Wiener processes.

Keywords: Long-Term Interest Rate; Government Bond Yields; Monetary Policy; Short-Term Interest Rate; Inflation; Inflation Target; John Maynard Keynes (search for similar items in EconPapers)
JEL-codes: E12 E43 E50 E58 E60 G10 G12 G41 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-ore and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_991

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