Download or read book Risk Aversion Intertemporal Substitution and the Term Structure of Interest Rates written by René Garcia and published by . This book was released on 2009 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Intertemporal Substitution Risk Aversion and Short Term Interest Rates written by Fernando Restoy and published by . This book was released on 1992 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the implications of a general representative agent intertemporal asset pricing model on the determination of the short term interest rates. The model includes an extension of the Non-expected Utility Isoelastic Preferences that incorporates non-separability between private consumption and government expenditure. The model yields a generalized Fisher equation where the nominal interest rates are explained by the expected depreciation of the purchasing power of money, an endogenously determined required risk free rate and an inflation risk premium. The econometric estimations suggest that the common rejection of the Fisher hypothesis can be, at least, partially explained by the traditional use of ad|hoc misspecified models. On the other hand, while the inflation risk premium is estimated to be small relative to the ex-ante real interest rate, its magnitude is substantially higher than the one obtained under the standard single-good expected utility models.

Download or read book The term structure of interest rates in a DSGE model with recursive preferences written by Jules H. van Binsbergen and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences written by Jesús Fernández-Villaverde and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Term Structure of Interest Rate in an Economy Where Investors Have Heterogeneous Recursive Preferences written by Sergey Isaenko and published by . This book was released on 2010 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous recursive preferences. We consider a pure exchange economy with two classes of investors who have different relative risk aversions and different elasticities of intertemporal substitution. The RRA and the EIS can be varied independently for each investor. We use the model to examine the effects that the heterogeneity in preferences of investors has on their portfolio-consumption choices as well as on the instantaneous interest rate and bond yield. We find that the heterogeneity only in the RRA affects the cross-sectional as well as intertemporal variations of the consumption rate, the portfolio allocations for each investor and the instantaneous interest rate. However, the heterogeneity only in the EIS matters only for the intertemporal variations of these processes.

Download or read book Liquidity Constraints Intertemporal Substitution and the Term Structure of Interest Rates written by Chul Ho Park and published by . This book was released on 1992 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Interest Rates and the Durability of Consumption Goods written by Harry Mamaysky and published by . This book was released on 2002 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article I study an economy with irreversible durable investment and investors who consume a durable and a nondurable good. In a general equilibrium setting, these assumptions lead to endogenous variation in the implied risk aversion of investors and in the term structure of interest rates. In the model, the magnitude of the intertemporal elasticity of substitution places certain restrictions on the joint dynamical behavior of durable consumption, nondurable consumption, and the yield curve. Tests of the model using postwar U.S. data are supportive of these restrictions. However, while the model is able to generate a relatively large term spread, the level and the variation of the resultant short rate are not empirically plausible. An approximate closed form solution of the model is derived.

Download or read book Risk Aversion Intertemporal Substitution and Consumption written by Frederick van der Ploeg and published by . This book was released on 1990 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Investigation of Asset Pricing Puzzles with Cyclical Risk Aversion and Intertemporal Substitution written by Xian Yang and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Representative agent models that embed the Lucas-Breeden (Lucas (1978), Breeden (1979)) paradigm for explaining asset return differentials are generally regarded as inconsistent with the empirical data. Difficulties such as the equity premium puzzle (Mehra and Prescott (1985)), the risk free rate puzzle (Weil (1989)), etc., are well documented and it has been shown that these puzzles are very robust (Kocherlakota (1996), Campbell (1996) and Cochrane (1997) provide good surveys). Recently, however, several authors (Campbell and Cochrane (1999), Gordon and St. Amour (2000, 2001) and Bakshi and Chen (1996) are some examples) have pointed to time-varying risk aversion as a potential source of mis-specification that may account for these puzzles. However, risk aversion and intertemporal substitution are intertwined in these models, just as they are in the additive expected utility model, therefore it is impossible to interpret unambiguously which feature of preferences varies over the cycle. The preferences suggested by Epstein and Zin (1989) can separate the coefficient of relative risk aversion ('CRRA') from the elasticity of intertemporal substitution ('EIS') and allow average consumption growth to have a much smaller effect than consumption volatility on the risk free interest rate. This paper generalizes the model of Epstein and Zin (1989) by allowing the representative agent to display countercyclical risk aversion and assesses if such behavior can add to the explanation of various empirical phenomena that have been investigated in finance and macroeconomics, such as the Mehra and Prescott (1985) equity premium puzzle. I investigate various combinations of state dependent 'CRRA' with state dependent 'EIS'. In the case of constant ' EIS' and time varying 'CRRA', my results look very similar to those generated without state dependence. However, I also investigate the same model but with time varying 'EIS' and constant ' CRRA'. I find that a time varying 'EIS' provides delightful results. I also find that time varying 'EIS' combined with a time varying 'CRRA' leads to even better results. As a further check, I use my calibrated preference parameters to predict the long-term interest rate. The calibrated preference parameters lead to very sensible term structure predictions. I also investigate a similar problem in an open economy. Based on a two-country general equilibrium model, I investigate the asset pricing puzzles from a different angle; i.e. an analysis of the predictability of excess rates of return on discount bonds, equities and foreign money markets using regression analysis. My work in an open economy setting basically supports Bekaert, Hodrick and David (1997) conclusion. I find that when I introduce both time varying ' EIS' and 'CRRA' into my two country model, the improved predictability of excess returns is insignificant. My results uphold a stronger statement: incorporating first order risk aversion with a simple pattern for time varying risk aversion and intertemporal substitution does not help much either. But my findings do not rule out the possibility that there could exist a richer pattern of time varying [rho] and à such that the estimated ßs can match the stylized results.

Download or read book Modeling the Term Structure of Interest Rates Under Nonseparable Utilityand Duriability of Goods written by Kenneth J. Singleton and published by . This book was released on 1984 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the term structure relations implied by a two-good model in which goods are durable and the preference function of consimters may be non separable both over time and the decision variables. The parameters characterizing preferences are estimated and the implied restrictions on the comovements of consumptions and the returns from following different investment strategies in bonds are examined. Both the durability of goods (modeled by a linear service technology) and the nonseparability of preferences over services from goods are important factors in explaining the time paths of individual returns. However, substantial evidence against our model is obtained when the restrictions associated with two different investment strategies are studied simultaneously. Specifically, the difference between the sample mean returns are too large relative to the difference between the sample covariances of the returns and the marginal utility from acquiring a unit of the numeraire good. Our findings suggest that these discrepancies are not a consequence of either the relatively small variability in aggregate acquisitions of goods, or our small estimates of relative risk aversion

Download or read book The Term Structure of Interest Rates written by Frank J. Bonello and published by . This book was released on 1968 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Term Structure of Interest Rates written by Lance Alexander Fisher and published by . This book was released on 1988 with total page 392 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.

Download or read book The Exchange and interest rate term structure under risk aversion and rational expectations written by and published by . This book was released on 1980 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors written by Jiang Wang and published by . This book was released on 1995 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to bond prices. We use the model to examine the effect of preference heterogeneity on the behavior of bond yields. Extensions to cases of more than two investors are also considered

Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.

Download or read book Financial Integration Entrepreneurial Risk and Global Dynamics written by George-Marios Angeletos and published by DIANE Publishing. This book was released on 2011-04 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: How does financial integration impact capital accumulation, current-account dynamics, and cross-country inequality? This paper investigates this question within a two-country, general-equilibrium, incomplete-markets model that focuses on the importance of idiosyncratic entrepreneurial risk -- a risk that introduces, not only a precautionary motive for saving, but also a wedge between the interest rate and the marginal product of capital. This friction provides a simple resolution to the empirical puzzle that capital often fails to flow from the rich or slow-growing countries to the poor or fast-growing ones, and a distinct set of policy lessons regarding the intertemporal costs and benefits of capital-account liberalization. Illus. A print on demand report.