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Journal Article

Long Forward and Zero-Coupon Rates Can Never Fall

Philip H. Dybvig, Jonathan E. Ingersoll, Jr. and Stephen A. Ross
The Journal of Business
Vol. 69, No. 1 (Jan., 1996), pp. 1-25
Stable URL: http://www.jstor.org/stable/2353247
Page Count: 25
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Long Forward and Zero-Coupon Rates Can Never Fall
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Abstract

In frictionless markets having no arbitrage, the asymptotic zero-coupon rate never falls. The same is true of the long forward rate. The long par-coupon rate can rise and fall due to forward rate movements at short maturities. This article relates the three types of interest rate and formalizes and proves the impossibility results for falling asymptotic rates. These results can be tested in a parametric term structure specification that is rich enough to identify a time series of long rates. The results show that it is not possible to specify arbitrarily the long forward or zero-coupon rate process.

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