02282cam a22002417 4500001000600000003000500006005001700011008004100028100001600069245011800085260006600203490004100269500001700310520132700327530006101654538007201715538003601787700002601823710004201849830007601891856003701967856003602004w6128NBER20150522103613.0150522s1997 mau||||fs|||| 000 0 eng d1 aDai, Qiang.10aSpecification Analysis of Affine Term Structure Modelsh[electronic resource] /cQiang Dai, Kenneth J. Singleton. aCambridge, Mass.bNational Bureau of Economic Researchc1997.1 aNBER working paper seriesvno. w6128 aAugust 1997.3 aThis paper characterizes, interprets, and tests the over-identifying restrictions imposed in affine models of the term" structure. Letting r(t) = ë Y(t), where Y is an unobserved vector affine process, our analysis proceeds in three steps. First, we show that affine models can be categorized according to the different over-identifying restrictions they impose on (i) ë, and (ii) the parameters of the diffusion matrices. Second, this formulation is shown to be equivalent to a model in which there is a terraced drift structure with one of the state variables being the stochastic long-run mean of r. This equivalence allows direct comparisons of the substantive restrictions on the dynamics of interest rates imposed in CIR-style models and models in which the state variables are the stochastic long-run mean and volatility of r. Third, we compute simulated method of moments estimates of a three-factor affine term structure model, and test the over-identifying restrictions on the joint distribution of long- and short-term interest rates implied by extant affine models of r. We find allowing for correlated factors is key to simultaneously describing the short and long ends of the yield curve. This finding is interpreted in terms of the properties of the risk factors underlying term structure movements. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aSingleton, Kenneth J.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w6128.4 uhttp://www.nber.org/papers/w612841uhttp://dx.doi.org/10.3386/w6128