Arbeitspapier
The term structure of interest rates in a DSGE model
The paper evaluates the implications of the Smets and Wouters (2004) DSGE model for the US yield curve. Bond prices are modelled in a way that is consistent with the macro model and the resulting risk premium in long term bonds is a function of the macro model parameters exclusively. When the model is estimated under the restriction that the implied average 10-year term premium matches the observed premium, it turns out that risk aversion and habit only need to rise slightly, while the increase in the term premium is achieved by a drop in the monetary policy parameter that governs the aggressiveness of the monetary policy rule. A less aggressive policy increases the persistence of the reaction of inflation and the short interest rate to any shock, reinforces the covariance between the marginal rate of substitution of consumption and bond prices, turns positive the contribution of the inflation premium and drives the term premium up. The paper concludes that by generating persistent inflation the presence of nominal rigidities can help in reconciling the macro model with the yield curve data.
- Language
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Englisch
- Bibliographic citation
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Series: NBB Working Paper ; No. 88
- Classification
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Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates
- Subject
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term structure of interest rates
policy rules
risk premia
Geldpolitik
Zinsstruktur
Risikoprämie
Dynamisches Gleichgewicht
Stochastisches Wachstumsmodell
Zinsstruktur
- Event
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Geistige Schöpfung
- (who)
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Emiris, Marina
- Event
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Veröffentlichung
- (who)
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National Bank of Belgium
- (where)
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Brussels
- (when)
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2006
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Emiris, Marina
- National Bank of Belgium
Time of origin
- 2006
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