FOLLOWING HICKS [91 AND LUTZ [11], economists have developed a substantial literature relating the forward interest rates implied by currently prevailing rates on debts of differing maturity to market participants' expectations of interest rates in the future. Hicks suggested that implied forward rates might differ from the corresponding expected future rates by a liquidity premium, or term premium, and more recently Stiglitz [19] and others have formalized how market participants' risk

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... would give rise to such a premium. While in principle the premium could be either positive or negative, the usual upward slope of the yield curve suggests a positive premium that itself varies positively with the debt's term to maturity. Kessel [10] subsequently suggested that the premium for a given maturity might vary with real economic activity, and Culbertson [2] argued