As an inaugural event of the Consortium, Oldrich Vasicek, whose claim to fame is the Vasicek short rate model, will give a lecture 4.00-5.00pm on the 26th February 2011, inLT2/Mong Man Wai Building, Chinese University of Hong Kong. This will be followed by a drink reception 5.00-6.00pm.
Inaugural Lecture : The economics of interest rates
Speaker : Oldrich Vasicek
Abstract : The paper presents a general equilibrium model of a competitive production/consumption economy with heterogeneous participants. The production process is controlled by a state variable representing the state of technology. The participants in the economy maximize their individual utilities of consumption. Each participant has a constant relative risk aversion. The degrees of risk aversion, as well as the time preference functions, differ across participants. The participants may lend and borrow among themselves, either at a floating short rate, or by issuing or buying term bonds. We derive conditions under which such economy is in equilibrium, and obtain equations determining interest rates as functions of economic variables.