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Testable implications of affine term structure models

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  • Hamilton, James D.
  • Wu, Jing Cynthia

Abstract

Affine term structure models have been used to address a wide range of questions in macroeconomics and finance. This paper investigates a number of their testable implications which have not previously been explored. We show that the assumption that certain specified yields are priced without error is testable, and find that the implied measurement or specification error exhibits serial correlation in all of the possible formulations investigated here. We further find that the predictions of these models for the average levels of different interest rates are inconsistent with the observed data, and propose a more general specification that is not rejected by the data.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 178 (2014)
Issue (Month): P2 ()
Pages: 231-242

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Handle: RePEc:eee:econom:v:178:y:2014:i:p2:p:231-242

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Web page: http://www.elsevier.com/locate/jeconom

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References

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  1. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2010. "Inflation Expectations and Risk Premiums in an Arbitrage-Free Model of Nominal and Real Bond Yields," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 143-178, 09.
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Cited by:
  1. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, 02.
  2. Yun, Tack & Kim, Jinsook & Ko, Eunmi, 2012. "The Role of Bounded Rationality in Macro-Finance Affine Term-Structure Models," MPRA Paper 44212, University Library of Munich, Germany.
  3. Juneja, Januj, 2014. "Term structure estimation in the presence of autocorrelation," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 119-129.

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