Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/91595
Authors: 
Strohsal, Till
Year of Publication: 
2013
Series/Report no.: 
SFB 649 Discussion Paper 2013-043
Abstract: 
This paper examines the preferred-habitat theory under time-varying risk aversion. The predicted positive relation between the term spread and relative supply of longer-term debt is stronger when risk aversion is high. To capture this effect, a time-varying coefficient model is introduced and applied to German bond data. The results support the theoretical predictions and indicate substantial time variation: under high risk aversion, yield spreads react about three times more strongly than when risk aversion is low. The accumulated response of term spreads to a one standard deviation change in debt supply ranges between 5 and 33 basis points.
Subjects: 
preferred-habitat
time-varying risk aversion
yield spreads
bond supply
JEL: 
E43
C22
Document Type: 
Working Paper

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