CHANGES IN THE CYCLICAL BEHAVIOR OF INTEREST RATES.

This article describes changes in the cyclical behavior of interest rates. It presents some evidence on the contribution to these changes of cycles in the growth rate of the money stock. The long-term interest rates covered are yields on U.S. bonds and high and low-grade corporate bonds for the period since World War I and yields on high-grade corporate, municipal and railroad bonds for a longer period. From a formal point of view, changes in interest rates can be interpreted as stemming from either the demand to borrow funds or the supply of new funds. While numerous developments have no doubt affected the timing and amplitude of particular interest rates, the changes discussed appear broadly based, so that the factors responsible seem to encompass the entire market for funds. A declining rate of monetary growth can tighten the money market and raise interest rates and an increasing growth rate can reduce them. Although there has been disagreement on the nature and importance of these effects, this study finds them to be quite important in cyclical movements.