What is the Real Story for Interest Rate Volatility ?

  title={What is the Real Story for Interest Rate Volatility ?},
  author={Andreas Hornstein and Harald Uhlig},
What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle… CONTINUE READING

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