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The Effect Of Conditional Volatility, Skewness, And Excess Kurtosis On Interest Rates, Sarah H. Al Talafha

University of New Orleans Theses and Dissertations

This paper examines the lognormality assumption of per capita, real consumption growth, which is a common assumption in asset pricing models. We found that shocks to household consumption growth are persistent, negatively skewed, and have excess kurtosis. Therefore, we revisited the fundamental relation between expected growth and the real risk-free rate, assuming a non-Gaussian distribution of consumption growth, and found a robust positive association between real consumption growth and real risk-free interest rate, and a negative relationship between macroeconomic uncertainty and real rates, although less in magnitude, which is consistent with both intertemporal smoothing and precautionary savings. This paper offers …