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An estimated DSGE model: explaining variation in term premia

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  • Andreasen, Martin

    ()
    (CREATES, Arhus University)

Abstract

This paper develops a DSGE model which explains variation in the nominal and real term structure along with inflation surveys and four macro variables in the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall in nominal term premia during the 1990s which mainly is due to lower inflation risk premia. A structural decomposition further shows that this fall is driven by negative preference shocks, lower fixed production costs, and positive investment shocks.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 441.

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Length: 54 pages
Date of creation: 14 Dec 2011
Date of revision:
Handle: RePEc:boe:boeewp:0441

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Keywords: Market price of risk; non-linear filtering; quantity of risk; Epstein-Zin-Weil preferences; third-order perturbation;

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References

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Cited by:
  1. Guimarães , Rodrigo, 2012. "What accounts for the fall in UK ten-year government bond yields?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(3), pages 213-223.

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