Testable Implications of Affine Term Structure Models

James Hamilton and Jing Cynthia Wu

No 16931, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba and nep-mac
Note: AP ME
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Citations: View citations in EconPapers (9)

Published as Hamilton, James D. & Wu, Jing Cynthia, 2014. "Testable implications of affine term structure models," Journal of Econometrics, Elsevier, vol. 178(P2), pages 231-242.

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Journal Article: Testable implications of affine term structure models (2014)
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