Long Run Risks in the Term Structure of Interest Rates: Estimation

Taeyoung Doh

No 137, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: This paper estimates a long run risk model with term structure data. Inflation and consumption growth both contain correlated long run risk components. The model is estimated by the likelihood-based Bayesian methods and estimates of the latent long run risk factors are extracted from both macro and term structure data. Empirical analysis using US data reveals that a small and persistent component in consumption growth interacting with expected inflation improves the model's fit for the term structure data.

Date: 2008
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Citations: View citations in EconPapers (5)

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Working Paper: Long run risks in the term structure of interest rates: estimation (2008)
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