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

51 Pages Posted: 19 May 2010

See all articles by Jesús Fernández-Villaverde

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

Jules H. van Binsbergen

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

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.

Keywords: DSGE models, Epstein-Zin Preferences, Likelihood Estimation

JEL Classification: E30, G12

Suggested Citation

Fernández-Villaverde, Jesús and Koijen, Ralph S. J. and Rubio-Ramirez, Juan Francisco and van Binsbergen, Jules H., The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences (April 2010). CEPR Discussion Paper No. DP7781. Available at SSRN: https://ssrn.com/abstract=1611437

Jesús Fernández-Villaverde (Contact Author)

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 )

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National Bureau of Economic Research (NBER) ( email )

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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

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

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