Long‐Run Risks In The Term Structure Of Interest Rates: Estimation
This paper estimates a long run risk model with term structure data. Inflation and consumption growth both contain correlated long run risk components. The model is estimated by the likelihood-based Bayesian methods and estimates of the latent long run risk factors are extracted from both macro and term structure data. Empirical analysis using US data reveals that a small and persistent component in consumption growth interacting with expected inflation improves the model's fit for the term structure data.
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Volume (Year): 28 (2013)
Issue (Month): 3 (04)
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