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The term structure of interest rates in a DSGE model with recursive preferences

Listed author(s):
  • van Binsbergen, Jules H.
  • Fernández-Villaverde, Jesús
  • Koijen, Ralph S.J.
  • Rubio-Ramírez, Juan

A dynamic stochastic general equilibrium (DSGE) model in which households have Epstein and Zin recursive preferences is solved with perturbation. The parameters governing preferences and technology are estimated by maximum likelihood using macroeconomic data and the term structure of interest rates. The estimates imply a large risk aversion, an elasticity of intertemporal substitution higher than one, and substantial adjustment costs. Furthermore, the paper identifies the tensions within the model by estimating it on subsets of these data. The analysis concludes by pointing out potential extensions that may improve the model's fit.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304393212000918
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): 7 ()
Pages: 634-648

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Handle: RePEc:eee:moneco:v:59:y:2012:i:7:p:634-648
DOI: 10.1016/j.jmoneco.2012.09.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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