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Explaining Macroeconomic and Term Structure Dynamics Jointly in a Non-linear DSGE Model

  • Martin Møller Andreasen

    ()

    (School of Economics and Management, University of Aarhus, Denmark and CREATES)

This paper shows how a standard DSGE model can be extended to reproduce the dynamics in the 10 year yield curve for the post-war US economy with a similar degree of precision as in reduced form term structure models. At the same time, we are able to reproduce the dynamics of four key macro variables almost perfectly. Our extension of a standard DSGE model is to introduce three non-stationary shocks which allow us to explain interest rates with medium and long maturities without distorting the dynamics of the macroeconomy.

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File URL: ftp://ftp.econ.au.dk/creates/rp/08/rp08_43.pdf
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Paper provided by Department of Economics and Business Economics, Aarhus University in its series CREATES Research Papers with number 2008-43.

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Length: 37
Date of creation: 02 Sep 2008
Date of revision:
Handle: RePEc:aah:create:2008-43
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  18. Martin Møller Andreasen, 2008. "Ensuring the Validity of the Micro Foundation in DSGE Models," CREATES Research Papers 2008-26, Department of Economics and Business Economics, Aarhus University.
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  35. Martin Møller Andreasen, 2008. "Non-linear DSGE Models, The Central Difference Kalman Filter, and The Mean Shifted Particle Filter," CREATES Research Papers 2008-33, Department of Economics and Business Economics, Aarhus University.
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