Abstract
A model previously developed by Lackman (C. L. Lackman, Forecasting commercial paper rates. Journal of Business Finance and Accounting 15 (1988) 499β524) for the period 1960 to 1985 is updated to include the 1990s and incorporate statistical techniques relating to tests for stationary conditions not available in 1988. As in the previous model, the demand for commercial paper by each institution (Households (HH), Life Insurance Companies (LIC), NonβFinancial Corporations (CRP) and Finance Corporations (FC)) and the total demand is simulated. Simulations of the commercial paper rate are also generatedβusing just the demand equations (total supply exogenous) and then employing the entire model (supply endogenous) to determine the rate. Simulation periods are from 1960:2 to 2001:4 for all demand simulations.
The dynamic simulation of the total demand for commercial paper performs well. The resulting root mean square error, 3.485, compares favourably with the Federal Reserve BostonβMassachusetts Institute of Technology (FRBβMIT) estimate of the commercial paper rate (deLeeuw and Granlich, 1968).βCopyright Β© 2004 John Wiley & Sons, Ltd.