| Sumario: | A rapidly developing literature is currently investigating the determination of interest rates through the conceptual approach of the structural model. In brief, a structural model of asset prices is simply the combination of a representation of investors' demand for securities and a representation of borrowers' supply of securities, together with a market clearing condition. Such a model stands in contrast to the traditional approach of modeling interest rate determination using an unrestricted reduced form of equation with the particular interest rate in question as the dependent variable. The results, presented in the article, demonstrate that the structural modeling approach to interest rate determination not only stands apart from the sectoral disaggregation question conceptually but also performs fairly well without sectoral disaggregation empirically. The article presents estimation and dynamic simulation results for an aggregated equivalent to the disaggregated model of the determination of bond yields developed in Benjamin M. Friedman.
|
|---|