By expanding the macro part of macro-finance models, historical fluctuations in US bond yields turn out to be largely consistent with the rational expectations hypothesis. We estimate a medium-scale macro-finance DSGE model of the term structure to establish this. Our finding contrasts with...

The central variable of theories of financial frictions--the external finance premium--is unobservable. This paper distils the external finance premium from a Dynamic Stochastic General Equilibrium (DSGE) model estimated on US macroeconomic data covering the period 1954 to 2004. Within the DSGE...

We analyze financial risk premiums and real economic dynamics in a DSGE model with three types of agents--shareholders, bondholders and workers--that differ in participation in the capital market and in attitude towards risk and intertemporal substitution. Aggregate productivity and distribution...