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The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences

Listed author(s):
  • Jules van Binsbergen
  • Jesús Fernández-Villaverde
  • Ralph S.J. Koijen
  • Juan F. Rubio-Ramírez

We solve a dynamic stochastic general equilibrium (DSGE) model in which the representative household has Epstein and Zin recursive preferences. The parameters governing preferences and technology are estimated by means of maximum likelihood using macroeconomic data and asset prices, with a particular focus on the term structure of interest rates. We estimate a large risk aversion, an elasticity of intertemporal substitution higher than one, and substantial adjustment costs. Furthermore, we identify the tensions within the model by estimating it on subsets of these data. We conclude by pointing out potential extensions that might improve the model's fit.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15890.

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Date of creation: Apr 2010
Publication status: published as van Binsbergen, Jules H. & Fernández-Villaverde, Jesús & Koijen, Ralph S.J. & Rubio-Ramírez, Juan, 2012. "The term structure of interest rates in a DSGE model with recursive preferences," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 634-648.
Handle: RePEc:nbr:nberwo:15890
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