A cubic estimte of the term structure of interest rates for a money demand function

Heller and Khan (1979) estimate the term structure of interest rates by a quadratic equation in order to employ the estimated parameters of the term structure in a demand-for-money function. An important improvement of their estimates can be made by specifying a cubic rather than a quadratic equation in order to estimate “humped” term structures. Furthermore, the ordinal numbering of the maturities must be changed to the actual length of the maturity of each security to avoid estimation error.