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An estimated DSGE model: explaining variation in term premia

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  • Andreasen, Martin

    (CREATES, Arhus University)

Abstract

This paper develops a DSGE model which explains variation in the nominal and real term structure along with inflation surveys and four macro variables in the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall in nominal term premia during the 1990s which mainly is due to lower inflation risk premia. A structural decomposition further shows that this fall is driven by negative preference shocks, lower fixed production costs, and positive investment shocks.

Suggested Citation

  • Andreasen, Martin, 2011. "An estimated DSGE model: explaining variation in term premia," Bank of England working papers 441, Bank of England.
    • Handle: RePEc:boe:boeewp:0441
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    Cited by:

    1. Guimarães , Rodrigo, 2012. "What accounts for the fall in UK ten-year government bond yields?," Bank of England Quarterly Bulletin, Bank of England, vol. 52(3), pages 213-223.
    2. Hall, Jamie, 2012. "Consumption dynamics in general equilibrium," MPRA Paper 43933, University Library of Munich, Germany.

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    More about this item

    Keywords

    Market price of risk; non-linear filtering; quantity of risk; Epstein-Zin-Weil preferences; third-order perturbation;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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