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New Keynesian macroeconomics and the term structure (2004)
| Venue: | OF MONEY, CREDIT, AND BANKING |
| Citations: | 82 - 9 self |
BibTeX
@ARTICLE{Bekaert04newkeynesian,
author = {Geert Bekaert and Seonghoon Cho and Antonio Moreno},
title = {New Keynesian macroeconomics and the term structure },
journal = {OF MONEY, CREDIT, AND BANKING},
year = {2004},
pages = {33--62}
}
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Abstract
This article complements the structural New-Keynesian macro framework with a no-arbitrage term structure model. Whereas our methodology is general, we focus on an extended macro-model with an unobservable time-varying markup and stochastic risk aversion. Term structure information helps to identify the dynamics of the observed and unobserved variables and the structural parameters. Moreover, the model yields a tractable linear system estimable by maximum likelihood or GMM. Whereas the VAR representation is simple when including term structure information, the reduced-form model for the observed macro variables is more complex. Relative to the term structure literature, we create an affine term structure model where all factors have an economic meaning and obey New-Keynesian structural relations. Our estimates yield a large Phillips curve parameter and a sensible curvature parameter for the utility function, making monetary policy quite effective. In the term structure, observable macro factors explain more of the variation of long yields compared with short yields. The unobservable factors contribute primarily to the dynamics of the slope and curvature factors in the term structure.
Keyphrases
term structure new keynesian macroeconomics term structure information utility function large phillips curve parameter tractable linear system maximum likelihood stochastic risk aversion long yield reduced-form model short yield structural parameter unobserved variable term structure literature affine term structure model var representation obey new-keynesian structural relation sensible curvature parameter unobservable factor curvature factor structural new-keynesian macro framework economic meaning extended macro-model unobservable time-varying markup observable macro factor no-arbitrage term structure model monetary policy observed macro variable
