《宏观经济学教学课件》Chapter_18.pptVIP

Introduction Financial markets link the macroeconomy and government policy directly to the lives of everyday people Changes in interest rates affect our ability to finance a home, car Movements in the stock market determine the value of pensions In this chapter we examine the behavior of three financial markets: Bond market Stock market Foreign exchange market Interest Rates: Long and Short Term Interest rates summarize the promised repayment terms on bonds, loans → not just one interest rate Interest rates differ according to: Credit worthiness of issuer Tax treatments Risk Term Other factors The factor of greatest focus here is the term or the length of time the interest rate covers The relation between interest rates of different maturities is called the term structure of interest Interest Rates: Long and Short Term Figure 18-1 shows interest rates for U.S. Treasury securities from 3 months to 30 years Interest rates of different maturities mostly go up and down together The gap between long term rates and short-term rates varies Long-term rates are usually higher than short-term rates Interest Rates: Long and Short Term Consider the relation between the 1-year and 3-year rates (today is January 1, 2020) You have the option of: Making a three year investment today and earning 3i2020 each year OR Investing for one year, reinvesting for another year at the prevailing rate at the beginning of 2021, and doing the same at the beginning of 2022 Interest Rates: Long and Short Term If all of the rates in Figure 18-2 were known in advance, the total returns would be equal for both options If the total returns were not equal, everyone would invest in the alternative with the greatest return → illustrates the idea of ARBITRAGE: Interest Rates: Long and Short Term The problem is, in 2020 we do not know 1i2021 or 1i2022 with certainty Need to modify our equation in two ways: Today’s long-term rate depends on the current short-term rate and the expected future short-ter