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

50 Pages Posted: 15 Mar 2010 Last revised: 15 Sep 2013

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Jesús Fernández-Villaverde

University of Pennsylvania - The Ronald O. Perelman Center for Political Science and Economics (PCPSE); National Bureau of Economic Research (NBER)

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: March 2011

Abstract

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.

Suggested Citation

van Binsbergen, Jules H. and Fernández-Villaverde, Jesús and Koijen, Ralph S. J. and Rubio-Ramirez, Juan Francisco, The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences (March 2011). PIER Working Paper No. 10-011. Available at SSRN: https://ssrn.com/abstract=1569916 or http://dx.doi.org/10.2139/ssrn.1569916

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Jesús Fernández-Villaverde

University of Pennsylvania - The Ronald O. Perelman Center for Political Science and Economics (PCPSE) ( email )

3718 Locust Walk
160 McNeil Building
Philadelphia, PA 19104
United States
215-898-1504 (Phone)
215-573-2057 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8057 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.econ.umn.edu/~rubio

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