An estimated DSGE model: Explaining variation in nominal term premia, real term premia, and inflation risk premia

Martin Andreasen

European Economic Review, 2012, vol. 56, issue 8, 1656-1674

Abstract: This paper develops a DSGE model which is shown to explain variation in the nominal and real term structure as well as inflation surveys and four macrovariables for the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall in nominal term premia during the 1990s which mainly is caused by lower inflation risk premia. A structural decomposition further shows that this fall is driven by negative preference shocks, lower fixed production costs, positive investment shocks, and a more aggressive response to inflation by the Bank of England.

Keywords: Market price of risk; Non-linear filtering; Quantity of risk; Epstein–Zin–Weil preferences; Third-order perturbation (search for similar items in EconPapers)
JEL-codes: C51 E10 E32 E43 E44 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:8:p:1656-1674

DOI: 10.1016/j.euroecorev.2012.09.006

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