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Time-series and Cross-section Information in Affine Term Structure Models

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  • de Jong, Frank

Abstract

In this paper we provide an empirical analysis of the term structure of interest rates using the affine class of term structure models introduced by Duffie and Kan. We estimate these models by combining time-series and cross-section information in a theoretically consistent way. In the estimation we use an exact discretization of the continuous time factor process and allow for a general measurement error structure. We provide evidence that a three factor affine model with correlated factors is able to provide an adequate fit of the cross section and the dynamics of the term structure. The three factors can be given the usual interpretation of level, steepness and curvature. The shocks to these factors are significantly correlated.

Suggested Citation

  • de Jong, Frank, 1999. "Time-series and Cross-section Information in Affine Term Structure Models," CEPR Discussion Papers 2065, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2065
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    More about this item

    Keywords

    Kalman Filter; Panel Data; Term Structure;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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