Garcia, René; Luger, Richard - Centre Interuniversitaire de Recherche en Analyse des … - 2009
We build and estimate an equilibrium model of the term structure of interest rates based on a recursive utility … specification. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints …. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model accounts …