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

49 Pages Posted: 12 Apr 2010 Last revised: 2 Jun 2024

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

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

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; 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: April 2010

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 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.

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 (April 2010). NBER Working Paper No. w15890, Available at SSRN: https://ssrn.com/abstract=1586697

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics ( email )

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Ralph S. J. Koijen

University of Chicago - Booth School of Business ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

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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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