Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

Khalil and Devi Dedari for research assistance and Bob McNown for helpful comments at an early stage of this project and Jeff Pliskin and participants in a workshop at the Levy Institute for helping comments and suggestions at a later stage. PROFITABILITY AND THE TIME-VARYING LIQUIDITY PREMIUM IN THE TERM STRUCTURE OF INTEREST RATES The existence, magnitude, and determinants of a. "liquidity premium " in the term structure of interest rates have been a source of controversy in the analysis of interest rate behavior for decades. This issue has received renewed attention in the past few years due to the failure of the t@expectationstl theory of the term structure to perform adequately in empirical tests. (See, for example, N. Gregory Mankiw and Lawrence Summers, 1984, and Mankiw, 1986.) The expectations theory, which holds that any long-term interest rate must equal the expectation of the movements in shorter-term rates over the term to maturity of the long-term

Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

Kaleckian models of growth in a coherent stock-flow monetary framework: a Kaldorian view Abstract: This paper presents a demand-led growth model grounded in a coherent stock-flow monetary accounting framework, where all stocks and flows are accounted for. Wealth is allocated between assets on Tobinesque principles, but no equilibrium condition is necessary to bring the “demand ” for money into equivalence with its “supply. ” Growth and profit rates, as well as valuation, debt, and capacity utilization ratios are analyzed using simulations in which a growing economy is assumed to be shocked by changes in interest rates, liquidity preference, real wages, and the parameters that determine how firms finance investment.