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The Term Structure of Interest Rates: Departures from Time-Separable Expected Utility


  • Allan W. Gregory
  • Graham M. Voss


This paper assesses the ability of general-equilibrium models of asset pricing using two recently developed sets of preferences to account quantitatively for the observed variability in the Canadian term structure of interest rates. The preference structures are nonexpected utility and habit persistence associated with Epstein and Zin (1989) and Constantinides (1990), respectively. The framework adopted follows Backus, Gregory, and Zin (1989), where a numerical version of the theory is specified and empirical features of the artificial economy are compared with actual data. Neither preference structure is able to mimic satisfactorily the magnitude or the variability of the risk premiums.

Suggested Citation

  • Allan W. Gregory & Graham M. Voss, 1991. "The Term Structure of Interest Rates: Departures from Time-Separable Expected Utility," Canadian Journal of Economics, Canadian Economics Association, vol. 24(4), pages 923-939, November.
  • Handle: RePEc:cje:issued:v:24:y:1991:i:4:p:923-39

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    References listed on IDEAS

    1. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
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    3. Iwata, Gyoichi, 1974. "Measurement of Conjectural Variations in Oligopoly," Econometrica, Econometric Society, vol. 42(5), pages 947-966, September.
    4. Mohnen, P, 1987. "The Effects of U.S. Shocks on Canadian Total Factor Productivity Growth: The Case of the Electrical Products Industry," Empirical Economics, Springer, vol. 12(4), pages 221-247.
    5. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
    6. Diewert, W. E., 1977. "Generalized slutsky conditions for aggregate consumer demand functions," Journal of Economic Theory, Elsevier, vol. 15(2), pages 353-362, August.
    7. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-274, August.
    8. Bernstein, Jeffrey I, 1989. "An Examination of the Equilibrium Specification and Structure of Production for Canadian Telecommunications," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(3), pages 265-282, July-Sept.
    9. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
    10. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
    11. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-1025, November.
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    13. Elie Appelbaum & Ulrich R. Kohli, 1979. "Canada-United States Trade: Tests for the Small-Open-Economy Hypothesis," Canadian Journal of Economics, Canadian Economics Association, vol. 12(1), pages 1-14, February.
    14. Kulatilaka, Nalin, 1985. "Tests on the validity of static equilibrium models," Journal of Econometrics, Elsevier, vol. 28(2), pages 253-268, May.
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    Cited by:

    1. Francisco Ruge-Murcia, 2012. "Skewness Risk and Bond Prices," Cahiers de recherche 17-2012, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. René Garcia & Richard Luger, 2012. "Risk aversion, intertemporal substitution, and the term structure of interest rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(6), pages 1013-1036, September.
    3. Balázs Romhányi, 2005. "A learning hypothesis of the term structure of interest rates," Macroeconomics 0503001, EconWPA.

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