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A nonlinear DSGE model of the term structure with regime shifts

Author

Listed:
  • Oreste Tristani

    (European Central Bank)

  • Gianni Amisano

    (European Central Bank)

Abstract

We construct and estimate the term structure implications of a small DSGE model with nominal rigidities in which the laws of motion of the structural shocks are subject to stochastic regime shifts. We demonstrate that, to a second order approximation, switching regimes generate time-varying risk premia. We then estimate the model on US data relying on information from both macroeconomic variables and the term structure. Our results support the specification with regime-switching: heteroskedasticity is a clear feature of the model's residuals and the regimes have intuitively appealing features. The model also generates non-negligible time-variability in excess holding period returns.

Suggested Citation

  • Oreste Tristani & Gianni Amisano, 2010. "A nonlinear DSGE model of the term structure with regime shifts," 2010 Meeting Papers 234, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:234
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    References listed on IDEAS

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    Cited by:

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    3. Carboni, Giacomo, 2014. "Term premia implications of macroeconomic regime changes," Working Paper Series 1694, European Central Bank.
    4. Asiye Aydilek & Harun Aydilek, 2020. "An optimization model of retiree decisions under recursive utility with housing," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(2), pages 258-277, April.

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