An institutional model of the term structure of interest rates.

by George. Lermer

Institution: McGill University
Department: Department of Economics and Political Science.
Degree: MA.
Year: 1963
Keywords: Economics and Political Science.
Record ID: 1559139
Full text PDF: http://digitool.library.mcgill.ca/thesisfile115148.pdf


Despite the accepted synthesis between the “real" and “monetary" economies, questions remain unanswered in the financial sector of the economy. Though these sectors were once considered separate, "real" or “value theory" methodology has dominated study of both areas. This thesis advances the proposition that the “financial sector” cannot be studied using the analytic tools of "value theory” alone. In particular, controversy continues concerning the relevance of the "expectations” hypothesis of the term structure of interest rates as opposed to the “institutional” hypothesis. Our thesis attempts a rigourous exposition of the “institutional” hypothesis. We describe how this hypothesis is a logical implication of the “balance effect”.