An affine three-factor model of the German term structure of interest rates with macroeconomic content
This paper extends the empirical no-arbitrage Gaussian affine term structure model of Cassola and Luis (2003) in a way that leads to a Taylor rule expression for the short rate dynamics. The empirical results indicate that the dynamics of the German term structure of interest rates can be sufficiently explained by expected variations in inflation and output plus an additional unobservable factor. The novelty is that we are able to extract a monetary policy reaction function within this no-arbitrage model that closely resembles empirical reaction functions based on the dynamics of the short rate only.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2005)
Issue (Month): 3 (May)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFL20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFL20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David K. Backus & Silverio Foresi & Chris Telmer, "undated".
"Discrete time models of bond pricing,"
GSIA Working Papers
251, Carnegie Mellon University, Tepper School of Business.
- David Backus & Silverio Foresi & Chris Telmer, 1998. "Discrete-Time Models of Bond Pricing," NBER Working Papers 6736, National Bureau of Economic Research, Inc.
- Nuno Cassola & Jorge Barros Luis, 2003. "A two-factor model of the German term structure of interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 13(11), pages 783-806. Full references (including those not matched with items on IDEAS)