Explaining Macroeconomic and Term Structure Dynamics Jointly in a Non-linear DSGE Model

Martin Andreasen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper shows how a standard DSGE model can be extended to reproduce the dynamics in the 10 year yield curve for the post-war US economy with a similar degree of precision as in reduced form term structure models. At the same time, we are able to reproduce the dynamics of four key macro variables almost perfectly. Our extension of a standard DSGE model is to introduce three non-stationary shocks which allow us to explain interest rates with medium and long maturities without distorting the dynamics of the macroeconomy.

Keywords: Price stickiness; Stochastic and deterministic trends; Term structure model; The Central Difference Kalman Filter; Yield curve (search for similar items in EconPapers)
JEL-codes: E10 E32 E43 E44 (search for similar items in EconPapers)
Pages: 37
Date: 2008-09-02
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2008-43

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