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The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences

Jesus Fernandez-Villaverde (), Ralph Koijen, Juan F Rubio-Ramirez () and Jules van Binsbergen ()

No 7781, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We solve a dynamic stochastic general equilibrium (DSGE) model in which the representative household has Epstein and Zin recursive preferences. The parameters governing preferences and technology are estimated by means of maximum likelihood using macroeconomic data and asset prices, with a particular focus on the term structure of interest rates. We estimate a large risk aversion, an elasticity of intertemporal substitution higher than one, and substantial adjustment costs. Furthermore, we identify the tensions within the model by estimating it on subsets of these data. We conclude by pointing out potential extensions that might improve the model's fit.

Keywords: DSGE models; Epstein-Zin Preferences; Likelihood Estimation (search for similar items in EconPapers)
JEL-codes: E30 G12 (search for similar items in EconPapers)
Date: 2010-04
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Related works:
Journal Article: The term structure of interest rates in a DSGE model with recursive preferences (2012) Downloads
Working Paper: The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences (2010) Downloads
Working Paper: The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences (2010) Downloads
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