The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences
Jules H. Van Binsbergen
Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)
University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)
Ralph S. J. Koijen
University of Chicago - Booth School of Business
Juan Francisco Rubio-Ramirez
Duke University - Department of Economics; Federal Reserve Bank of Atlanta - Research Department
PIER Working Paper No. 10-011
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 larger than one, and substantial adjustment costs. Furthermore, we identify the tensions within the model by estimating the model on subsets of these data. We conclude by pointing out potential extensions that might improve the model's fit.
Number of Pages in PDF File: 50working papers series
Date posted: March 15, 2010 ; Last revised: March 9, 2011
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