A Base Model for Multifactor Specifications of the Term Structure
type="main" xml:lang="en"> <p>In this article, we aim to show that most of the recent multifactor specifications of the term structure can be traced back to a common general equilibrium model, based on an economy of the Cox, Ingersoll and Ross type. This base model of the term structure has a very general form and includes both square root and Gaussian dynamics of the underlying state variables. We establish a direct link among the state variables used in the different specifications of many multifactor models and analyse the structure of the resultant implied relationships. This technique has relevant implications from a practical point of view, as it can allow one to recover from the estimated coefficients of one model the implied value of the coefficients of other models. Moreover, it provides a way of recovering from the term structure the values of such unobservable variables as the real short rate and the expected inflation rate. <p>(J.E.L.: E43, G12).
Year of publication: |
1999
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Authors: | Berardi, Andrea ; Esposito, Marcello |
Published in: |
Economic Notes. - Banca Monte dei Paschi di Siena SpA. - Vol. 28.1999, 2, p. 145-170
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Publisher: |
Banca Monte dei Paschi di Siena SpA |
Saved in:
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