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

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  • 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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Bibliographic 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
Date of revision:
Handle: RePEc:aah:create:2008-43

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

Related research

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

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References

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Citations

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Cited by:
  1. Fernando M. Duarte, 2013. "Inflation risk and the cross section of stock returns," Staff Reports 621, Federal Reserve Bank of New York.
  2. Oreste Tristani & Gianni Amisano, 2010. "A nonlinear DSGE model of the term structure with regime shifts," 2010 Meeting Papers 234, Society for Economic Dynamics.
  3. De Paoli, Bianca & Zabczyk, Pawel, 2011. "Cyclical risk aversion, precautionary saving and monetary policy," Bank of England working papers 418, Bank of England.
  4. Andreasen, Martin, 2011. "An estimated DSGE model: explaining variation in term premia," Bank of England working papers 441, Bank of England.
  5. Gregory R. Duffee, 2012. "Bond pricing and the macroeconomy," Economics Working Paper Archive 598, The Johns Hopkins University,Department of Economics.
  6. Darracq Pariès, Matthieu & Loublier, Alexis, 2010. "Epstein-Zin preferences and their use in macro-finance models: implications for optimal monetary policy," Working Paper Series 1209, European Central Bank.

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