Models to Predict 2 Interest Rates

Keynes held that the rate of interest is determined, instead, by the intersection of the supply of money and the demand for money. Instead of time preference, which is involved in the classical economic theory of interest, the Keynesian theory of interest is concerned with liquidity preference. The liquidity preference schedule includes both the transactions demand and the assets demand for money.

The Keynesian theory of interest, however, suffers from the fact that the liquidity preference will shift up or down with changes in the real income level, in a manner similar to the shifting to the shifting of savings in the classical economic theory of interest. Thus, in Keynesian analysis, given the total money supply, it is not possible to determine what quantity of money will be available to hold as an asset unless the real income level (and, hence, the transactions demand for money) is first known.

Another development in interest rate theory was the loanable funds theory of interest. Loanable funds are comprised of the money which is available for lending to individ

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the quantity of money in the economy·the money supply. Model Building The level of interest rates is a primary point of focus in the efforts of the Board of Governors of the Federal Reserve System to fulfill the System's mandate to, among other things, promote economic growth and preserve economic stability. The Federal Reserve can exert a significant influence on the level of interest rates through the development and implementation of monetary policy. Through manipulation of the money supply, the Federal Reserve can cause interest rate changes on a somewhat delayed basis. Through the setting of the discount rate and the inter bank borrowing rate, the Federal Reserve can exert a more immediate impact on interest rate levels. Experience has shown that both the Federal Reserve and the financial markets are sensitive to movements in several macroeconomic measures in relation to either setting or attempting to influence the level of interest rates. Four of these macroeconomic measures are selected as independent variables in the prediction models that are developed in this report for the 90-day United States Treasury Bill and the 90-day certificate of deposit issued by a financial institution. The macroeconomic
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Some common words found in the essay are:
Treasury Bill, Federal Reserve, , loanable funds, Reserve System, money supply, federal reserve, Model Building, M1 CPI, loanable funds theory, funds theory, independent variables, keynesian theory, vice versa, rates ie, liquidity preference, unemployment rate, negative relationship posited, classical economic theory, theory loanable funds, average weekly wage, United Treasury,
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