[OPE-L:2357] Re: interest

Chai-on Lee (conlee@chonnam.chonnam.ac.kr)
Fri, 24 May 1996 19:54:02 -0700

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Duncan wrote on May 25 in [OPE-L:2353]

Long-term bonds have a much bigger risk of price change as the
result of future interest rate changes, which is why I think of their
prices as subject to speculation. I suppose in theory long-term
interest rates could be closely linked to profit rates (for example,
Smith seems to have thought this), but I don't see much relation in
the data I know about.


Bonds are, whether they are long-term ones or not, capable of being
sold and bought on the market at any time. They are basically influential
in the determination of the short-term interest rates. Consols are of the
longest term, but they are seen as determining the short term interest
rate in keynesian economics. Long-term interests are related to the
long term investment (on the fixed capitals, the equipments, etc.), and
so should be related to the expected profit rate.