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MACRO‐FINANCE MODELS OF INTEREST RATES AND THE ECONOMY
Author(s) -
RUDEBUSCH GLENN D.
Publication year - 2010
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2010.02198.x
Subject(s) - economics , yield curve , macro , arbitrage , bond , interest rate , affine term structure model , general equilibrium theory , representation (politics) , term (time) , order (exchange) , financial economics , econometrics , finance , macroeconomics , physics , quantum mechanics , politics , computer science , political science , law , programming language
During the past decade, much new research has combined elements of finance, monetary economics and macroeconomics in order to study the relationship between the term structure of interest rates and the economy. In this survey, I describe three different strands of such interdisciplinary macro‐finance term structure research. The first adds macroeconomic variables and structure to a canonical arbitrage‐free finance representation of the yield curve. The second examines bond pricing and bond risk premiums in a canonical macroeconomic dynamic stochastic general equilibrium model. The third develops a new class of arbitrage‐free term structure models that are empirically tractable and well suited to macro‐finance investigations.