A Joint Econometric Model of Macroeconomic and Term Structure Dynamics

By Peter Hördahl, O. Tristani, David Vestin. Social Science Research Network, 2006

512 citations recorded by the source corpus.

We construct and estimate a tractable model of macroeconomic and yield curve dynamics. Bond yields are affine in the state variables of a forward-looking macromodel, and are derived assuming absence of arbitrage opportunities. Our approach allows us to interpret the dynamics of yields and risk premia in terms of macroeconomic fundamentals. In an application to German data, the forecasting performance of the model is often found to be superior to that of the best available alternatives in the affine class. Our approach has considerable success in accounting for features of the data that represent a puzzle for the expectations hypothesis.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/aed2c316ee729a01f5bc79afea2a46f42d9ff9b5

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Citations in the corpus

Euro Area Inflation Persistence in an Estimated Nonlinear DSGE Model (2008, unknown): “• projection p(xt+1|yot ,θ) = Z p(xt+1|xt,θ)p(xt|yot ,θ)dxt (21)”
Fiscal Policy and the Term Structure of Interest Rates (2005, unknown): “Indeed, for the purpose of pricing bonds, Hördahl, Tristani, and Vestin (2003) posit a reduced-form pricing kernel on top of the marginal rate of substitution underlying the Euler equation.”
Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies (2019, background): “In particular, endogenously deriving the shadow rate within the structural model, by attempting to directly introduce a term structure into the model (along the lines of Ang and Piazzesi, 2003; Hordahl et al., 2006) would be a promising step.”
A Multi-Factor Model for the Valuation and Risk Managment of Demand Deposits (2006, unknown): “r j (t) = a d j + bj 0 f (t) + "i (t); j = 1; :::; J (21)”