Long-term Yields Implied by Stochastic Discount Factor Decompositions

Caio Almeida () and Fernando Cordeiro

Brazilian Review of Econometrics, 2019, vol. 39, issue 1

Abstract: We use the framework developed by Christensen (2017) and Hansen and Scheinkman (2009) to study the long-term interest rates in the US and Brazil. We apply a nonparametric estimator to US and Brazilian data to identify how the yield of a long-term zero-coupon bond responds to the initial state of the economy. Using a flexible specification for the state process leads to an interesting non-linear response of the yield to changes in the initial state. As a by-product of our work, we assess the performance of Christensen's estimator using Monte Carlo simulations based on two widely adopted asset pricing models (rare disasters and habit formation).

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:39:y:2019:i:1:a:76365

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