Arbeitspapier

Equilibrium yield curves under regime switching

This paper studies how inflation as a macroeconomic indicator affects nominal bond prices. I consider an economy with a representative agent with Epstein-Zin preferences. Regime switching affects the state-space capturing inêation and consumption growth. Thus, the agent is concerned about the intertemporal distribution of risk, which is affected by the persistence of the variables and the regimes. Regime switching allows for structural changes in the volatility of unexpected shocks. To the extent that inêationary unexpected shocks indicate lower consumption growth, nominal bond holders need to be compensated for these shocks. It follows that a switch in the regime state affecting the covariance of inflation and consumption growth can be interpreted as a change in the price of risk. I find coefficients of risk aversion from 40 to 90, and subjective discount factors above 0.99, depending on the exact specification of the model. The model yields have on average a positive slope, a consistent Principal Components decomposition, and predictability as in Cochrane and Piazzesi (2002).

Sprache
Englisch

Erschienen in
Series: Working Papers ; No. 2010-08

Klassifikation
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Interest Rates: Determination, Term Structure, and Effects
Financial Markets and the Macroeconomy
Price Level; Inflation; Deflation
Thema
Consumption-based Asset Pricing
Regime Switching
Recursive Preferences
Yield Curve
Term Structure of Interest Rates
Kapitaleinkommen
Zinsstruktur
CAPM

Ereignis
Geistige Schöpfung
(wer)
García-Verdú, Santiago
Ereignis
Veröffentlichung
(wer)
Banco de México
(wo)
Ciudad de México
(wann)
2010

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • García-Verdú, Santiago
  • Banco de México

Entstanden

  • 2010

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