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Explaining Macroeconomic and Term Structure Dynamics Jointly in a Non-linear DSGE Model

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Author Info
Martin Møller Andreasen () (School of Economics and Management, University of Aarhus, Denmark and CREATES)
Abstract

This paper shows how a standard DSGE model can be extended to reproduce the dynamics in the 10 year yield curve for the post-war US economy with a similar degree of precision as in reduced form term structure models. At the same time, we are able to reproduce the dynamics of four key macro variables almost perfectly. Our extension of a standard DSGE model is to introduce three non-stationary shocks which allow us to explain interest rates with medium and long maturities without distorting the dynamics of the macroeconomy.

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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2008-43.

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Length: 37
Date of creation: 02 Sep 2008
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Handle: RePEc:aah:create:2008-43

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Web page: http://www.econ.au.dk/afn/

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Related research
Keywords: Price stickiness; Stochastic and deterministic trends; Term structure model; The Central Difference Kalman Filter; Yield curve;

Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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