Learning and the Role of Macroeconomic Factors in the Term Structure of Interest Rates

Learning and the Role of Macroeconomic Factors in the Term Structure of Interest Rates (2007)

by Thomas Laubach , Robert J. Tetlow , John C. Williams

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Datum	Value	Source
TITLE	Learning and the Role of Macroeconomic Factors in the Term Structure of Interest Rates	user correction
AUTHOR NAME	Thomas Laubach	user correction
AUTHOR NAME	Robert J. Tetlow	user correction
AUTHOR NAME	John C. Williams	user correction
ABSTRACT	Models of the term structure based on only observable variables have had limited success in explaining movements in longer-term interest rates. A key assumption in much of this literature is that agents know all the parameters describing the model of the economy and that these parameters are fixed for all time. In this paper, we relax both of these assumptions and assume that agents regularly re-estimate the parameters of their models–both those determining the point forecasts and those describing economic volatility–based on incoming data. In this way, we allow for the real-time problem of pricing assets based on the information set available at the time. In addition, we allow for discounting of past data reflecting a concern on the part of agents for structural change in the economy. We find that the learning model with discounting does a much better job at explaining longer-term yields than an equivalent model with constant coefficients estimated over the full sample; in particular, the deviations from the expectations	user correction
YEAR	2007	SVM HeaderParse 0.2
CITATIONS	39 found	ParsCit 1.0