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Discussion Paper Details

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Title: Time-series and Cross-section Information in Affine Term Structure Models

Author(s): Frank de Jong

Publication Date: February 1999

Keyword(s): Kalman Filter, Panel Data and Term Structure

Programme Area(s): Financial Economics

Abstract: In this paper we provide an empirical analysis of the term structure of interest rates using the affine class of term structure models introduced by Duffie and Kan. We estimate these models by combining time-series and cross-section information in a theoretically consistent way. In the estimation we use an exact discretization of the continuous time factor process and allow for a general measurement error structure. We provide evidence that a three factor affine model with correlated factors is able to provide an adequate fit of the cross section and the dynamics of the term structure. The three factors can be given the usual interpretation of level, steepness and curvature. The shocks to these factors are significantly correlated.

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Bibliographic Reference

de Jong, F. 1999. 'Time-series and Cross-section Information in Affine Term Structure Models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2065