Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
Home

About this journal
   Aims and scope

   Editorial board

Submit your article

Archive

Search

Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Spectral Analysis of the Term Structure of Interest Rates: Habit Formation vs. Recursive Utility in a DSGE Model

Vol.21, No.3, September , 1–30



  •   (Kyunghee University)

  •   (Kyunghee University)

PDF
Abstract  

We examine whether a new Keynesian DSGE model can generate yields that match the spectral properties of the actual yields. For this purpose, we consider two competing specifications for utility in a DSGE model: habit formation and recursive utility. We find that the yields generated from the DSGE model with either specification for utility can match the spectral properties of the actual yields reasonably well. However, it seems fair to say that each specification has some individual disadvantages. In the case of habit formation, we need very persistent and large shocks to explain the time-varying term premia. The DSGE models with recursive utility are not free of problems, either. They have difficulty in generating either a sufficient yield curve slope or positive (negative) correlations between nominal interest rates (spreads) and output.


Keywords
   Term Structure of Interest Rates, DSGE Model, Habit Formation, Recursive Utility, Spectral Properties

JEL classification codes
   E4, G1
Links

KCI list
Korean ES
JETEM at SCOPUS

Powered by MathJax