A Preferred-Habitat Model of the Term Structure of Interest Rates

Dimitri Vayanos and Jean-Luc Vila

No 15487, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model the term structure of interest rates as resulting from the interaction between investor clienteles with preferences for specific maturities and risk-averse arbitrageurs. Because arbitrageurs are risk averse, shocks to clienteles' demand for bonds affect the term structure---and constitute an additional determinant of bond prices to current and expected future short rates. At the same time, because arbitrageurs render the term structure arbitrage-free, demand effects satisfy no-arbitrage restrictions and can be quite different from the underlying shocks. We show that the preferred-habitat view of the term structure generates a rich set of implications for bond risk premia, the effects of demand shocks and of shocks to short-rate expectations, the economic role of carry trades, and the transmission of monetary policy.

JEL-codes: E4 E5 G1 (search for similar items in EconPapers)
Date: 2009-11
Note: AP EFG ME
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Citations: View citations in EconPapers (464)

Published as Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.

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Related works:
Journal Article: A Preferred‐Habitat Model of the Term Structure of Interest Rates (2021)
Working Paper: A preferred-habitat model of the term structure of interest rates (2021)
Working Paper: A Preferred-Habitat Model of the Term Structure of Interest Rates (2009)
Working Paper: A preferred-habitat model of the term structure of interest rates (2009)
Working Paper: A Preferred-Habitat Model of the Term Structure of Interest Rates (2009)
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