TY - JOUR
AU - Friedman,Benjamin M.
TI - How Important is Disaggregation in Structural Models of Interest Rate Determination?
JF - National Bureau of Economic Research Working Paper Series
VL - No. 294
PY - 1978
Y2 - October 1978
DO - 10.3386/w0294
UR - http://www.nber.org/papers/w0294
L1 - http://www.nber.org/papers/w0294.pdf
N1 - Author contact info:
Benjamin M. Friedman
Department of Economics
Littauer Center 127
Harvard University
Cambridge, MA 02138
Tel: 617/495-4246
Fax: 617/495-7730
E-Mail: bfriedman@harvard.edu
AB - The results presented below demonstrate that the structural modeling approach to interest rate determination not only stands apart from the sectoral disaggregation question conceptually but also performs fairly well without sectoral disaggregation empirically. This paper presents estimation and dynamic simulation results for an aggregated equivalent to the disaggregated model of the determination of bond yields developed in Friedman (1977; 1979). Instead of six bond demand and two bond supply equations, here there are but one demand and one supply equation. The empirical results show that, while disaggregation is of value in structural interest rate modeling (that is, the disaggregated model outperforms the aggregated one), even the aggregated structural model performs very well in comparison with familiar unrestricted reduced-form term structure equations.
ER -