Substantial shifts in wealth ownership from individuals to pension funds are currently taking place in the United States and also are in prospect for the foreseeable future. Moreover, pension funds typically exhibit portfolio preferences that are markedly different from those of individuals. In a world of heterogeneous investors, redistributions among wealth holders with different portfolio preferences will in general alter the structure of asset yields. Partial-equilibrium simulation experiments based on a model of the U. S. long-term bond market indicate that redistributions of saving flows from individuals to pension funds, in plausible magnitudes, can have major effects on the term structure of interest rates. In a world in which wealth holders ' risk aversion renders different assets less than perfect substitutes, the interaction between investors' portfolio preferences and existing asset supplies determines the structure of asset yields. Using a model in which the only explicitly traded assets are money and bonds, for example, Patinkin [19651 showed explicitly how either a shift in the exogenously determined

The results presented below demonstrate that the structural modeling approach to interest rate determination not only stands apart from the sectoral disaggregation question conceptually but also performs fairly well without sectoral disaggregation empirically. This paper presents estimation and dynamic simulation results for an aggregated equivalent to the disaggregated model of the determination of bond yields developed in Friedman (1977; 1979). Instead of six bond demand and two bond supply equations, here there are but one demand and one supply equation. The empirical results show that, while disaggregation is of value in structural interest rate modeling (that is, the disaggregated model outperforms the aggregated one), even the aggregated structural model performs very well in comparison with familiar unrestricted reduced-form term structure equations.

The use of iterative algorithms, based on the Gauss-Seidel method or a similar approach, to solve systems of nonlinear simultaneous equations may lead to problematical situations which in theory are not surprising, but in practice are unexpected by the user. In particular, such situations may arise in the solution of econometric models for simulation purposes. One source of the problem lies in the failure of these algorithms, which repeatedly solve single equations according to some sequential ordering,1 to deal with the interaction properties of specific higher-order subsystems of closely related equations. One illustration of such a subsystem is the set of equations which determines unemployment and labor force in the Wharton Econometric Forecasting Model [1].

The fact that actual economic advance over time normally means producing and consuming different things is usually left implicit in modern models of economic growth. By contrast, qualitative change--new goods and services, and better versions of what already existed--is central to Robert Gordon's history of the improvement of American living standards since 1870. A major contribution of his fine-grained account of this experience is to make clear what this improvement has meant, and why it has mattered to ordinary citizens.

In contrast to the standard interpretation of the origins of economics out of the secular European Enlightenment of the 18th century, the transition in thinking that we rightly identify with Adam Smith and his contemporaries and followers, which gave us economics as we now know it, was powerfully influenced by then-controversial changes in religious belief in the English-speaking Protestant world in which they lived: in particular, key aspects of the movement away from orthodox Calvinism. Further, those at-the-outset influences of religious thinking not only fostered the subsequent spread of Smithian thinking, especially in America, but shaped the course of its reception. The ultimate result was a variety of fundamental resonances between economic thinking and religious thinking that continue to influence our public discussion of economic issues, and our public debate over economic policy, today.

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.

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