The Yield Curve and Macroeconomic Dynamics*

Hördahl, Peter; Tristani, Oreste; Vestin, David

doi:10.1111/j.1468-0297.2008.02197.x

Cited by 88 publications

(72 citation statements)

References 41 publications

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“…11 See Backus, Gregory, and Zin (1989), Donaldson, Johnsen, and Mehra (1990), Den Haan (1995), and Chapman (1997) and to a full second-order approximation around the steady state (Hördahl, Tristani, and Vestin, 2006b) are only moderately more successful, because they imply that all risk premiums in the model are constant (in other words, these authors all assume the weak form of the expectations hypothesis). Obtaining a local approximation that actually produces time-varying risk or term premiums requires a full third-order approximation, as in our analysis above and in Ravenna and Seppälä (2006).…”

Section: F E D E R a L R E S E R V E B A N K O F S T Lo U I S R E V mentioning

confidence: 99%

Macroeconomic Implications of Changes in the Term Premium

Rudebusch

Sack²,

Swanson

2007

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Linearized New Keynesian models and empirical no-arbitrage macro-finance models offer little insight regarding the implications of changes in bond term premiums for economic activity. This paper investigates these implications using both a structural model and a reduced-form framework. The authors show that there is no structural relationship running from the term premium to economic activity, but a reduced-form empirical analysis does suggest that a decline in the term premium has typically been associated with stimulus to real economic activity, which contradicts earlier results in the literature. ( The puzzlement over the recent low and relatively stable levels of long-term interest rates has generated much interest in trying to understand both the source of these low rates and their economic implications. In addressing these issues, it is useful to divide the yield on a long-term bond into an expected-rate component that reflects the anticipated average future short rate for the maturity of the bond and a term-premium component that reflects the compensation that investors require for bearing the interest rate risk from holding long-term instead of short-term debt. Chairman Greenspan's later July 2005 monetary policy testimony suggested that the conundrum likely involved movements in the latter component, noting that "a significant portion of the sharp decline in the ten-year forward one-year rate over the past year appears to have resulted from a fall in term premiums." This interpretation has been supported by estimates from various finance and macro-finance models that indicate that the recent relatively stable 10-year Treasury yield reflects that the upward revisions

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Section: F E D E R a L R E S E R V E B A N K O F S T Lo U I S R E V mentioning

confidence: 99%

Macroeconomic Implications of Changes in the Term Premium

Rudebusch

Sack²,

Swanson

2007

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“…The AR(1) term in d t is omitted to ensure that variations in long-term yields and term premia are primarily explained in our model by consumption and inflation dynamics and not by persistent preference shocks. We simultaneously include habit formation and Epstein-Zin preferences because the New Keynesian model needs both to jointly match macro and financial moments (see Hordahl et al, 2008;Binsbergen et al, 2012).…”

Section: Householdsmentioning

confidence: 99%

The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

2013

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This article studies the pruned state-space system for higher-order perturbation approximations to dynamic stochastic general equilibrium (DSGE) models. We show the stability of the pruned approximation up to third order and provide closed-form expressions for first and second unconditional moments and impulse response functions. Our results introduce generalized method of moments (GMM) estimation and impulse-response matching for DSGE models approximated up to third order and provide a foundation for indirect inference and simulated method of moments (SMM). As an application, we consider a New Keynesian model with Epstein-Zin preferences and two novel feedback effects from long-term bonds to the real economy, allowing us to match the level and variability of the 10-year term premium in the U.S. with a low relative risk aversion of 5.

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“…I propose a method to analytically evaluate conditional expectations of no-arbitrage conditions for bond yields, based on the stochastic discount factor given by a second-order solution of the DSGE model. This approach differs from Hördahl et al (2008), Ravenna and Seppälä (2006), and Rudebusch and Swanson (2008) who use various approximations for bond yields on top of a higher-order approximation to the macro solution.…”

Section: Introductionmentioning

confidence: 92%

Yield curve in an estimated nonlinear macro model

Doh

2011

Journal of Economic Dynamics and Control

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The Yield Curve and Macroeconomic Dynamics*

Cited by 88 publications

References 41 publications

Macroeconomic Implications of Changes in the Term Premium

Macroeconomic Implications of Changes in the Term Premium

The Pruned State-Space System for Non-Linear DSGE Models: Theory and Empirical Applications

Yield curve in an estimated nonlinear macro model

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