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Robust Equilibrium Yield Curves

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  • Nicolas Vincent

    (HEC Montreal)

  • Isaac Kleshchelski

    (Kellogg School of Management, Northwestern University)

Abstract

framework, stochastic volatility in consumption growth generates both a state-dependent market price of model uncertainty and a stochastic market price of risk. We estimate the model using data from the bond and equity markets, as well as consumption data. We show that the model is consistent with key empirical regularities that characterize the bond and equity markets. We also characterize empirically the set of models the robust representative agent entertains, and show that this set is ‘small’. That is, it is statistically difficult to distinguish between models in this set.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 486.

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Date of creation: 2008
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Handle: RePEc:red:sed008:486

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References

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Citations

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Cited by:
  1. Hisashi Nakamura & Keita Nakayama & Akihiko Takahashi, 2008. "Term Structure of Interest Rates Under Recursive Preferences in Continuous Time," Asia-Pacific Financial Markets, Springer, vol. 15(3), pages 273-305, December.
  2. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," NBER Working Papers 16181, National Bureau of Economic Research, Inc.
  3. Rhys Bidder & Matthew E. Smith, 2013. "Doubts and variability: a robust perspective on exotic consumption series," Working Paper Series 2013-28, Federal Reserve Bank of San Francisco.
  4. Cosmin Ilut, 2012. "Ambiguity Aversion: Implications for the Uncovered Interest Rate Parity Puzzle," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 33-65, July.
  5. Ulrich, Maxim, 2013. "Inflation ambiguity and the term structure of U.S. Government bonds," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 295-309.

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