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Long‐Run Risks In The Term Structure Of Interest Rates: Estimation

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  • Taeyoung Doh

Abstract

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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  • Taeyoung Doh, 2013. "Long‐Run Risks In The Term Structure Of Interest Rates: Estimation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(3), pages 478-497, April.
  • Handle: RePEc:wly:japmet:v:28:y:2013:i:3:p:478-497
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    2. Staveley-O’Carroll, James & Staveley-O’Carroll, Olena M., 2017. "Impact of pension system structure on international financial capital allocation," European Economic Review, Elsevier, vol. 95(C), pages 1-22.
    3. Startz Richard & Tsang Kwok Ping, 2012. "Nonexponential Discounting: A Direct Test And Perhaps A New Puzzle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-35, November.
    4. Philippe Mueller & Andrea Vedolin & Hao Zhou, 2011. "Short Run Bond Risk Premia," FMG Discussion Papers dp686, Financial Markets Group.
    5. Bjørn Eraker & Ivan Shaliastovich & Wenyu Wang, 2016. "Durable Goods, Inflation Risk, and Equilibrium Asset Prices," Review of Financial Studies, Society for Financial Studies, vol. 29(1), pages 193-231.
    6. Anh Le & Kenneth J. Singleton, 2010. "An Equilibrium Term Structure Model with Recursive Preferences," American Economic Review, American Economic Association, vol. 100(2), pages 557-561, May.

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