| Abstract: | The behavior of the term structure of interest rates is studied analytically within a simple stochastic growth model. It is shown that the qualitative characteristics of interest rate behavior within this setting do not differ from those in more general settings which have been studied previously through numerical methods. Specifically, it is demonstrated that interest rates are countercyclical; the yield curve will invert in recessions, but, on average will have a positive slope implying a positive term premium. |
