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Stochastic Interest Rates in the Aggregate Life Cycle/Permanent Income Cum Rational Expectations Model


An estimation of the life cycle/permanent income model with rational expectations that allows for uncertain future interest rates. Results provide ample evidence to reject this form of model during the postwar period.


Suggested citation: Kowalewski, Kim, 1985. “Stochastic Interest Rates in the Aggregate Life Cycle/Permanent Income Cum Rational Expectations Model,” Federal Reserve Bank of Cleveland, Working Paper no. 85-06.

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