Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152480
Authors: 
Barros Luís, Jorge
Cassola, Nuno
Year of Publication: 
2001
Series/Report no.: 
ECB Working Paper 46
Abstract: 
In this paper we show that a two-factor constant volatility model provides an adequate description of the dynamics and shape of the German term structure of interest rates from 1972 up to 1998. The model also provides reasonable estimates of the volatility and term premium curves. Following the conjecture that the two factors driving the German term structure of interest rates represent the H[-DQWH real interest rate and the expected inflation rate, the identification of one factor with expected inflation is discussed. Our estimates are obtained using a Kalman filter and a maximum likelihood procedure including in the measurement equation both the yields and their volatilities
Subjects: 
affine model
expectations hypothesis
pricing kernels
term premiums
JEL: 
E43
G12
Document Type: 
Working Paper

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