Testable Implications of Affine Term Structure Models

34 Pages Posted: 12 May 2011 Last revised: 25 Sep 2013

See all articles by James D. Hamilton

James D. Hamilton

University of California at San Diego; National Bureau of Economic Research (NBER)

Jing Cynthia Wu

University of Notre Dame - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 16, 2011

Abstract

Affine term structure models have been used to address a wide range of questions in macroeconomics and finance. This paper investigates a number of their testable implications which have not previously been explored. We show that the assumption that certain specified yields are priced without error is testable, and find that the implied measurement or specification error exhibits serial correlation in all of the possible formulations investigated here. We further find that the predictions of these models for the average levels of different interest rates are inconsistent with the observed data, and propose a more general specification that is not rejected by the data.

Suggested Citation

Hamilton, James D. and Wu, Jing Cynthia, Testable Implications of Affine Term Structure Models (May 16, 2011). Journal of Econometrics, Forthcoming; Chicago Booth Research Paper No. 13-69. Available at SSRN: https://ssrn.com/abstract=1838573 or http://dx.doi.org/10.2139/ssrn.1838573

James D. Hamilton

University of California at San Diego ( email )

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National Bureau of Economic Research (NBER)

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Jing Cynthia Wu (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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