An Equilibrium Term Structure Model with Recursive Preferences
نویسنده
چکیده
Equilibrium, affine asset pricing models with L. Epstein and S. Zin (1989)’s preferences typically generate time-variation in risk premiums through time variation in the quantity of risks, with the market prices of risks (MPR) held constant. This is true of models with built in longrun consumption risks (LRR) (e.g., R. Bansal and A. Yaron (2004), R. Bansal, D. Kiku and A. Yaron (2009)), as well as of the broader formulations in B. Eraker and I. Shaliastovich (2008). For pricing bonds such formulations may be overly constrained as reduced-form models suggest that it is time variation in the MPR’s, more than stochastic yield volatilities, that resolves the expectations puzzles in bond markets.
منابع مشابه
A Term Structure Model with Preferences for the Timing of Resolution of Uncertainty
In this paper we present a model of the term structure of interest rates with imperfect information and stochastic differential utility, a form of non-additive recursive utility. A principal feature of recursive utility, that distinguishes it from time-separable expected utility, is its dependence on the timing of resolution of uncertainty. In our model, we parametrize the non-linearity of recu...
متن کاملInvestigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran
In this paper, we try to develop and modify the basic model of the consumption-based capital asset pricing model by adding the growth in real money balances rate as a risk factor in the household's utility function as (M-CCAPM). For this purpose, two forms of utility function with constant relative risk aversion (CRRA) preferences and recursive preferences have been used such that M1 and M2 are...
متن کاملDiscrete-time Recursive Utility
This paper focuses on the fundamentals of discrete-time models using recursive utility. We examine the relation between preferences, utility, and aggregator, the existence of optimal paths, and several notions of impatience. In the one-sector model, we characterize optimal paths and derive a turnpike theorem. Topics beyond the scope of this paper include continuous time recursive utility, model...
متن کاملConsumption-Based Asset Pricing with Recursive Utility
In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the general method of moment (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, recursive utility permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of i...
متن کاملOptimal Monetary Policy in a Model with Recursive Preferences
This paper provides a simple and elegance approach for an empirical investigation of a model with Epstein-Zin (1989) preferences. The perturbation method implemented in Dynare is readily applicable for computation of equilibrium and welfare. A stylized new Keynesian economy with sticky prices is analyzed and optimal simple rules are accessed across various types of monetary policy rules.
متن کامل