Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153844
Authors: 
Christoffel, Kai
Jaccard, Ivan
Kilponen, Juha
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1411
Abstract: 
We introduce a specification of habit formation featuring non-separability between consumption and leisure into an otherwise standard New Keynesian model. The model can be estimated with standard Bayesian techniques and the bond pricing implications are evaluated using higher-order approximations. The model is able to reproduce a sizeable risk premium on long-term bonds and the cyclicality of fiscal policy has an impact on the bond premium that is quantitatively important. Technology, government spending, and mark-up shocks are the main drivers of the time-variation in bond premia.
Subjects: 
bond risk premium
DSGE Models
Fiscal Policy
monetary policy
JEL: 
E5
E6
G1
Document Type: 
Working Paper

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