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A Preferred-Habitat Model of the Term Structure of Interest Rates / Dimitri Vayanos, Jean-Luc Vila.
- Format:
- Book
- Author/Creator:
- Vayanos, Dimitri.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w15487.
- NBER working paper series no. w15487
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2009.
- Summary:
- We model the term structure of interest rates as resulting from the interaction between investor clienteles with preferences for specific maturities and risk-averse arbitrageurs. Because arbitrageurs are risk averse, shocks to clienteles' demand for bonds affect the term structure---and constitute an additional determinant of bond prices to current and expected future short rates. At the same time, because arbitrageurs render the term structure arbitrage-free, demand effects satisfy no-arbitrage restrictions and can be quite different from the underlying shocks. We show that the preferred-habitat view of the term structure generates a rich set of implications for bond risk premia, the effects of demand shocks and of shocks to short-rate expectations, the economic role of carry trades, and the transmission of monetary policy.
- Notes:
- Print version record
- November 2009.
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