Time-series and Cross-section Information in Affine Term Structure Models

Frank de Jong

No 2065, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this paper we provide an empirical analysis of the term structure of interest rates using the affine class of term structure models introduced by Duffie and Kan. We estimate these models by combining time-series and cross-section information in a theoretically consistent way. In the estimation we use an exact discretization of the continuous time factor process and allow for a general measurement error structure. We provide evidence that a three factor affine model with correlated factors is able to provide an adequate fit of the cross section and the dynamics of the term structure. The three factors can be given the usual interpretation of level, steepness and curvature. The shocks to these factors are significantly correlated.

Keywords: Kalman Filter; Panel Data; Term Structure (search for similar items in EconPapers)
JEL-codes: C33 E43 (search for similar items in EconPapers)
Date: 1999-02
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Citations: View citations in EconPapers (4)

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Journal Article: Time Series and Cross-Section Information in Affine Term-Structure Models (2000)
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