Behavior of interest rates in a general equilibrium multisector model with irreversible investment
Journal Article (Journal Article)
The behavior of the real interest rate in a general equilibrium multisector model with irreversible investment is examined. It is shown that in such a model purely sectoral shocks can lead to substantial variation in the real interest rate and other aggregate time series. A source of variation in aggregate time series that is not found in one-sector models is thus examined, and the implications of this source of variation for the behavior of the interest rate are highlighted. Such a model seems to better capture the relationship among the real interest and output or investment than the standard one-sector stochastic growth model. It is also shown that, because of a desire to smooth consumption, with irreversible investment a rise in uncertainty concerning the future return to capital tends to lead to more current investment and a lower real interest rate.
Full Text
Duke Authors
Cited Authors
- Coleman, WJ
Published Date
- January 1, 1997
Published In
Volume / Issue
- 1 / 1
Start / End Page
- 206 - 227
International Standard Serial Number (ISSN)
- 1365-1005
Digital Object Identifier (DOI)
- 10.1017/s1365100597002071
Citation Source
- Scopus