An estimated DSGE model: explaining variation in term premia

Martin Andreasen

No 441, Bank of England working papers from Bank of England

Abstract: This paper develops a DSGE model which explains variation in the nominal and real term structure along with inflation surveys and four macro variables in 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 due to lower inflation risk premia. A structural decomposition further shows that this fall is driven by negative preference shocks, lower fixed production costs, and positive investment shocks.

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)
Pages: 54 pages
Date: 2011-12-14
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0441

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