EconPapers    
Economics at your fingertips  
 

Yield curve in an estimated nonlinear macro model

Taeyoung Doh

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 8, 1229-1244

Abstract: This paper estimates a sticky price macro model with US macro and term structure data using Bayesian methods. The model is solved by a nonlinear method. The posterior distribution of the parameters in the model is found to be bi-modal. The degree of nominal rigidity is high at one mode ("sticky price mode") but is low at the other mode ("flexible price mode"). I find that the degree of nominal rigidity is important for identifying macro shocks that affect the yield curve. When prices are more flexible, a slowly varying inflation target of the central bank is the main driver of the overall level of the yield curve by changing long-run inflation expectations. In contrast, when prices are more sticky, a highly persistent markup shock is the main driver. The posterior probability of each mode is sensitive to the use of observed proxies for inflation expectations. Ignoring additional information from survey data on inflation expectations significantly reduces the posterior probability of the flexible price mode. Incorporating this additional information suggests that yield curve fluctuations can be better understood by focusing on the flexible price mode. Considering nonlinearities of the model solution also increases the posterior probability of the flexible price mode, although to a lesser degree than using survey data information.

Keywords: Bayesian; econometrics; DSGE; model; Term; structure; of; interest; rates (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188911000480
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Yield curve in an estimated nonlinear macro model (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:8:p:1229-1244

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-08-18
Handle: RePEc:eee:dyncon:v:35:y:2011:i:8:p:1229-1244