Department of Economics and Business Economics

Explaining Macroeconomic and Term Structure Dynamics Jointly in a Non-linear DSGE Model

Research output: Working paperResearch

  • Martin Møller Andreasen, Denmark
  • School of Economics and Management
This paper shows how a standard DSGE model can be extended to reproduce the dynamics
in the 10 year yield curve for the post-war US economy with a similar degree of precision
as in reduced form term structure models. At the same time, we are able to reproduce the
dynamics of four key macro variables almost perfectly. Our extension of a standard DSGE
model is to introduce three non-stationary shocks which allow us to explain interest rates
with medium and long maturities without distorting the dynamics of the macroeconomy.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages37
Publication statusPublished - 2008

    Research areas

  • Price stickiness, Stochastic and deterministic trends, Term structure model, The Central Difference Kalman Filter, Yield curve

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ID: 12330872