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Robust Equilibrium Yield Curves

  • Nicolas Vincent

    (HEC Montreal)

  • Isaac Kleshchelski

    (Kellogg School of Management, Northwestern University)

framework, stochastic volatility in consumption growth generates both a state-dependent market price of model uncertainty and a stochastic market price of risk. We estimate the model using data from the bond and equity markets, as well as consumption data. We show that the model is consistent with key empirical regularities that characterize the bond and equity markets. We also characterize empirically the set of models the robust representative agent entertains, and show that this set is ‘small’. That is, it is statistically difficult to distinguish between models in this set.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 486.

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Date of creation: 2008
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Handle: RePEc:red:sed008:486
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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