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A Macroeconomic Foundation for the Equilibrium Term Structure of Interest Rates
2013
Social Science Research Network
Preserved Fulltext
This paper explores the term structure of interest rates implied by a stochastic endogenous growth model with imperfect price adjustment. The production and pricesetting decisions of firms drive low-frequency movements in growth and inflation rates that are negatively related. With recursive preferences, these growth and inflation dynamics are crucial for rationalizing key stylized facts in bond markets. When calibrated to macroeconomic data, the model quantitatively explains the means and
doi:10.2139/ssrn.2256328
fatcat:4scoosrgevgmrobxio4xsy6vyi