Reconciling the term structure of interest rates with the consumption-based ICAP model

Journal of Economic Dynamics and Control

Volumn 20, Issue 4, 1996, Pages 709-750

  Canova, Fabio ^a   Marrinan, Jane ^a  

^a UNIVERSITAT POMPEU FABRA   (Spain)

Author keywords

Cash in advance; Heteroskedasticity; Simulation; Spreads; Yields

Indexed keywords

EID: 0030115717     PISSN: 01651889     EISSN: None     Source Type: Journal    
DOI: 10.1016/0165-1889(95)00872-1     Document Type: Article

References (70)

1. Backus, D., A. Gregory, and S. Zin, 1989, Risk premiums in the term structure: Evidence from artificial economies, Journal of Monetary Economics 24, 371-399.
2. Baillie, R. and T. Bollerslev, 1992, Prediction in dynamic models with time dependent conditional variances, Journal of Econometrics 52, 91-113.
3. Boudoukh, J., 1993, An equilibrium model of nominal bond prices with inflation-output correlations, Journal of Money, Banking and Credit 25, 636-679.
4. Breeden, D., 1979, An intertemporal asset pricing model with stochastic consumption and investment opportunities, Journal of Financial Economics 7, 265-296.
5. Breeden, D., 1986, Consumption, production, inflation and interest rates: A synthesis, Journal of Financial Economics 16, 3-39.
6. Breeden, D., M. Gibbons, and R. Litzenberger, 1989, Empirical tests of the consumption oriented CAPM, Journal of Finance 44, 231-262.
7. Brown, S. and M. Gibbons, 1985, A simple econometric approach for utility based asset pricing models, Journal of Finance 40, 338-359.
8. Burnside, C., M. Eichenbaum, and S. Rebelo, 1993, Labor hoarding and the business cycle, Journal of Political Economy 101, 245-273.
9. Campbell, J., 1986, A defence of the traditional hypothesis about the term structure of interest rates, Journal of Finance 41, 183-193.
10. Campbell, J. and R. Shiller, 1987, Cointegration and tests of present value models, Journal of Political Economy 95, 1062-1088.
11. Campbell, J. and R. Shiller, 1992, Yield spread and interest rates movements: A bird's eye view, Review of Economic Studies 58, 495-514.
12. Canova, F., 1994, Statistical inference in calibrated model, Journal of Applied Econometrics 9, S123-S144.
13. Canova, F. and J. Marrinan, 1993, Profits, risk and uncertainty in foreign exchange markets, Journal of Monetary Economics 32, 229-286.
14. Canova, F. and J. Marrinan, 1995, Predicting excess returns in financial markets, European Economic Review 39.
15. Cooley, T. and L. Ohanian, 1990, Yield curve inversion and real activity, Manuscript (University of Rochester, Rochester, NY).
16. Costantinides, G., 1990, Habit persistence: A resolution of the equity premium puzzle, Journal of Political Economy 98, 519-543.
17. Cox, J., J. Ingersoll, and S. Ross, 1985, A theory of the term structure of interest rates, Econometrica 53, 385-407.
18. DenHaan, W., 1990, Money, leisure and the term structure of interest rates, Manuscript (Carnegie Mellon University, Pittsburgh, PA).
19. Diebold, F., 1988, Empirical modelling of exchange rate dynamics (Springer Verlag, New York, NY).
20. Donaldson, J., T. Johnsen, and R. Mehra, 1990, The behavior of the term structure of interest rates in a real business cycle model, Journal of Economic Dynamic and Control 14, 571-598.
21. Duffie, D. and K. Singleton, 1993, Simulated moment estimator of Markov models of asset prices, Econometrica 61, 929-952.
22. Dunn, K. and K. Singleton, 1986, Modelling the term structure of interest rates under nonseparable utility and durability of goods, Journal of Financial Economics 17, 27-55.
23. Eichenbaum, M., L. Hansen, and K. Singleton, 1988, A time series analysis of representative agent models of consumption and leisure choice under uncertainty, Quarterly Journal of Economics 103, 51-78.
24. Engle, R. and V. Ng, 1991, Time varying volatility and the dynamic behavior of the term structure, Journal of Finance 48, 1749-1778.
25. Fama, E., 1976, Foundation of finance (Basic Books, New York, NY).
26. Fama, E., 1984, The information in the term structure, Journal of Financial Economics 13, 509-528.
27. Ferson, W. and C. Harvey, 1991, The variation in economic risk, Journal of Political Economy 99, 385-415.
28. Friend, I. and M. Blume, 1970, Measurement of portfolio performance under uncertainty, American Economic Review 60, 561-576.
29. Froot, K., 1989, A new hope for the expectation hypothesis of the term structure of interest rates, Journal of Finance 44, 283-305.
30. Gelfand, A. and A. Smith, 1990, Sampling based approaches to calculating marginal densities, Journal of the American Statistical Association 85, 398-409.
31. Geweke, J., 1989, Bayesian inference in econometric models using Monte Carlo integration, Econometrica 57, 1317-1339.
32. Giovannini, A. and P. Labadie, 1989, Asset prices and interest rates in cash-in-advance models, Journal of Political Economy 99, 1215-1251.
33. Gregory, A. and G. Smith, 1991, Calibration as testing: Inference in simulated macro models, Journal of Business and Economic Statistics 9, 293-303.
34. Hansen, L. and R. Hodrick, 1983, Risk averse speculation in forward foreign exchange markets: An econometric analysis of linear model, in: J. Frenkel, ed., Exchange rates and international macroeconomics (Chicago, University Press, Chicago, IL).
35. Hansen, L. and K. Singleton, 1983, Stochastic consumption, risk aversion and the temporal behavior of asset returns, Journal of Political Economy 91, 249-265.
36. Heaton, J., 1993, An empirical investigation of asset pricing with temporally dependent preferences specifications, Econometrica 62, 355-372.
37. Heaton, J. and D. Lucas, 1992, Asset pricing, undiversifiable income shocks and trading costs, Journal of Economic Dynamics and Control 17, 953-970.
38. Hodrick. R., 1989, Risk, uncertainty and exchange rates, Journal of Monetary Economics 23, 433-460.
39. Hodrick, R., N. Kocherlakota, and D. Lucas, 1991, The variability of velocity in cash-in-advance models, Journal of Political Economy 99, 358-384.
40. Huggett, M., 1993, The risk free rate in heterogeneous agent, incomplete insurance economies, Journal of Economic Dynamics and Control 17, 953-970.
41. Kandel, S. and R. Stambaugh, 1990, Expectations and the volatility of consumption and asset returns, Review of Financial Studies 3, 207-232.
42. Kandel, S. and R. Stambaugh, 1991, Asset returns and intertemporal preferences, Journal of Monetary Economics 27, 39-71.
43. Kearns, P. and A. Pagan, 1992, Estimating the density tail index for financial series, Manuscript (University of Rochester, Rochester, NY).
44. Kendall, M. and A. Stuart, 1958, The advanced theory of statistics, Vol. 2 (Hafner, New York, NY).
45. Kessel, R., 1965, The cyclical behavior of the term structure of interest rates, NBER occasional paper no. 91.
46. Knuth, D., 1981, Seminumerical algorithms, 2nd ed., Vol. 2 of: The art of scientific computing (Addison and Wesley, Reading, MA).
47. Kocherlakota, N., 1990, On tests of representative consumer asset pricing models, Journal of Monetary Economics 26, 285-304.
48. Kwan, Y.K., 1990, Bayesian model calibration with an application to a non-linear rational expectation two-country model, Manuscript (University of Chicago, Business School, Chicago, IL).
49. Labadie, P., 1989, Stochastic inflation and the equity premium, Journal of Monetary Economics 24, 277-298.
50. Labadie, P., 1991, The term structure of interest rates over the business cycle, Manuscript (Federal Reserve Board, Washington, DC).
51. Lee, B.S., 1989, A nonlinear rational expectations models of the term structure of interest rates with time varying risk premia, Journal of Money, Credit and Banking 21, 347-367.
52. Lee, B.S. and B. Ingram, 1991, Simulation estimators of time series models, Journal of Econometrics 47, 197-207.
53. Lewis, K., 1991, Was there a 'peso problem' in the US term structure of interest rates: 1979-1982, International Economic Review 32, 159-179.
54. Longstaff, F. and E. Schwartz, 1992, Interest rate volatility and the term structure: A two factor general equilibrium model, Journal of Finance 47, 1259-1282.
55. Lucas, R., 1980, Equilibrium in a pure currency economy, Economic Inquiry 18, 203-220.
56. Mankiw, G. and L. Summers, 1984, Do long-term interest rates overreact to short term interest rates?, Brookings Paper on Economic Activity 1, 223-242.
57. Marcet, A. and K. Singleton, 1991, Equilibrium asset prices and savings of heterogeneous agents in the presence of portfolio constraints, Manuscript (Stanford University, Stanford, CA).
58. McCulloch, H. and R. Shiller, 1987, The term structure of interest rates, in: B. Friedman and F. Hahn, eds., The handbook of monetary economics (North-Holland, Amsterdam).
59. Mehra, R. and E. Prescott, 1985, The equity premium: A puzzle, Journal of Monetary Economics 15, 145-161.
60. Pagan, A. and A. Ullah, 1988, The econometric analysis of models with risk terms, Journal of Applied Econometrics 3, 87-105.
61. Pennachi, G., 1991, Identifying the dynamics of real interest rates and inflation: Evidence using survey data, Review of Financial Studies 4, 53-86.
62. Philips, P.C.B., 1991, To criticize the critics, Journal of Applied Econometrics 6, 333-354.
63. Press, W., B. Flannery, S. Teukolsky, and W. Vetterling, 1989, Numerical recipes: The art of scientific computing (Cambridge University Press, Cambridge, MA).
64. Schwert, W., 1990, Stock volatility and the crash of 87, Review of Financial Studies 3, 77-102.
65. Sims, C., 1988, Bayesian skepticism on unit root econometrics, Journal of Economic Dynamic and Control 12, 463-476.
66. Smith, T., 1993, Estimation of dynamic economic models by simulation: A comparison of the approaches, Journal of Applied Econometrics 8, s35-s56.
67. Stambaugh, R., 1988, The information in forward rates: Implications for models of the term structure, Journal of Financial Economics 21, 41-70.
68. Stock, J. and M. Watson, 1989, Interpreting the evidence of money-income causality, Journal of Econometrics 40, 161-182.
69. Weil, P., 1989, The equity premium puzzle and the risk free rate, Journal of Monetary Economics 24, 401-421.
70. Wilcox, D., 1992, What do we know about consumption?, American Economic Review 82, 922-941.