A DSGE Model of the Term Structure with Regime Shifts
Speaker
Abstract
| We analyse the term structure implications of a small DSGE model with nominal rigidities in which the laws of motion of the structural shocks are subject to stochastic regime shifts. We first demonstrate that, to a second order approximation, switching regimes generate time-varying risk premia. We then estimate the model using sequential Monte Carlo methods and relying on information from both macroeconomic and term structure data. Our preliminary results, based on the linearised model, support the specification with regime switching. Shifts in the variance of technology shocks are clearly associated with the transition to the Great moderation; changes in the variance of policy shocks identify the so-called monetarist experiment; switches in the variance of preference shocks have a cyclical nature. |
| Contact information: |
| Erik Kole |
