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Term Structure of Interest Rates

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Abstract

The term structure of interest rates concerns the relationship among the yields of bonds that differ only with respect to their terms of maturity. This article explains the three traditional explanations of the term structure. (1) The expectations theory considers the long rate to be an average of current and future short rates. (2) The liquidity-preference theory posits that illiquid, risky long-terms bonds must yield a premium over expected short rates. (3) The hedging-pressure theory stresses the influence of the preferred habitats of different investors. A survey of empirical work on the term structure including affine yield models concludes.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Burton G. Malkiel

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  1. Burton G. Malkiel
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    Malkiel, B.G. (2008). Term Structure of Interest Rates. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_1596-2

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    • DOI: https://doi.org/10.1057/978-1-349-95121-5_1596-2

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    • Online ISBN: 978-1-349-95121-5

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    1. Latest

      Term Structure of Interest Rates
      Published:
      17 March 2017

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1596-2

    2. Original

      Term Structure of Interest Rates
      Published:
      27 November 2016

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1596-1

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