Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset‐liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.

Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. In recent years, for example, individual savers have relied progressively more on pensions and thrift institutions and progressively less on life insurance companies. Moreover, legislative and regulatory actions currently under discussion would further alter the pattern of individuals' saving flows. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset-liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.

11], economists have developed a substantial literature relating the forward interest rates implied by currently prevailing rates on debts of differing maturity to market participants' expectations of interest rates in the future.Hicks suggested that implied forward rates might differ from the corresponding expected future rates by a liquidity premium, or term premium, and more recently Stiglitz [19] and others have formalized how market partici- pants' risk aversion would give rise to such a premium.While in principle the premium could be either positive or negative, the usual upward slope of the yield curve suggests a positive premium that itself varies positively with the debt's term to maturity.Kessel [10] subsequently suggested that the premium for a given maturity might vary with real economic activity, and Culbertson [2] argued that relative outside debt supply quantities should als' affect the premium.More recently Nelson [16] offered an explanation for the premium even in the absence of risk aversion, and Friedman [5] related changes in the premium to shifts in wealth ownership among heterogenous investors.An accompanying empirical literature has repeatedly tested each of these various hypotheses about forward rates and expected future rates, but usually with somewhat inconclusive results.A key reason for the weakness of much of this empirical literature has been the absence of independent information about market participants' expectations.Not surprisingly, the very early attempts based on the assumption of perfect foresight were most unsuccessful and this approach quickly went out of fashion.The traditional procedure since then has been either to apply the Hicks-Lutz theory to derive expectations proxies from the same term-structure data that generate the forward rates, or to use some other device like autoregressive or 'rational' expectations proxies.In either case, any hypoth- esis submitted to statistical testing is necessarily a joint hypothesis embodying both the relation of forward rates to expectations and the formation of expecta- tions themselves.Failure of the hypothesis to conform to the data may then indicate rejection of the proposition relating forward rates to expectations, or rejection of the identifying restrictions imposed to derive the expectations proxy (or both).The object of this paper is to test several familiar hypotheses about the relationship between the forward rates implied by the term structure and interest

Benjamin M. Friedman, The Effects of Tax Policy on Capital Formation, Corporate Liquidity and the Availability of Investible Funds: A Simulation Study: Discussion, The Journal of Finance, Vol. 31, No. 2, Papers and Proceedings of the Thirty-Fourth Annual Meeting of the American Finance Association Dallas, Texas December 28-30, 1975 (May, 1976), pp. 309-312