Kenan-Flagler Business School
University of North Carolina
Campus Box #3490
Chapel Hill, NC 27599
Institutional Affiliation: University of North Carolina
NBER Working Papers and Publications
|August 2005||Fiscal Policy and the Term Structure of Interest Rates|
with Thomas Philippon: w11574
Macroeconomists want to understand the effects of fiscal policy on interest rates, while financial economists look for the factors that drive the dynamics of the yield curve. To shed light on both issues, we present an empirical macro-finance model that combines a no-arbitrage affine term structure model with a set of structural restrictions that allow us to identify fiscal policy shocks, and trace the effects of these shocks on the prices of bonds of different maturities. Compared to a standard VAR, this approach has the advantage of incorporating the information embedded in a large cross-section of bond prices. Moreover, the pricing equations provide new ways to assess the model's ability to capture risk preferences and expectations. Our results suggest that (i) government deficits affec...
|March 2001||Expectation Puzzles, Time-varying Risk Premia, and Dynamic Models of the Term Structure|
with Kenneth J. Singleton: w8167
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory,' we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and Campbell and Shiller, among others, within large subclasses of affine and quadratic-Gaussian term structure models. Additionally, we show that certain risk-premium adjusted' projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models. Key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly, ...
Published: Dai, Qiang and Kenneth J. Singleton. "Expectation Puzzles, Time-Varying Risk Premia, And Affine Models Of The Term Structure," Journal of Financial Economics, 2002, v63(3,Mar), 415-441.
|August 1997||Specification Analysis of Affine Term Structure Models|
with Kenneth J. Singleton: w6128
This 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 stochasti...
Published: Dai, Qiang and Kenneth J. Singleton. "Specification Analysis Of Affine Term Structure Models," Journal of Finance, 2000, v55(5,Oct), 1943-1978. citation courtesy of