We advocate the use of excess returns rather than yields or log prices in analysing the risk neutral dynamics of the term structure. We show that under standard assumptions, excess returns are affine in the risk neutral innovations in the factors. This framework has several important advantages....

We develop a Gaussian discrete time essentially affine term structure model with long memory state variables. This feature reconciles the strong persistence observed in nominal yields and inflation with the theoretical implications of affine models, especially for long maturities. We...

Linear estimators of the affine term structure model are inconsistent since they cannot reproduce the factors used in estimation. This is a serious handicap empirically, giving a worse fit than the conventional MLE estimator that ensures consistency. We show that a simple self-consistent...