Modeling the Term Structure of Interest Rates Under Nonseparable Utilityand Duriability of Goods / Kenneth B. Dunn, Kenneth J. Singleton.

Format:

Book

Author/Creator:

Dunn, Kenneth B.

Contributor:

National Bureau of Economic Research.

Singleton, Kenneth J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1415.

NBER working paper series no. w1415

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper investigates the term structure relations implied by a two-good model in which goods are durable and the preference function of consimters may be non separable both over time and the decision variables. The parameters characterizing preferences are estimated and the implied restrictions on the comovements of consumptions and the returns from following different investment strategies in bonds are examined. Both the durability of goods (modeled by a linear service technology) and the nonseparability of preferences over services from goods are important factors in explaining the time paths of individual returns. However, substantial evidence against our model is obtained when the restrictions associated with two different investment strategies are studied simultaneously. Specifically, the difference between the sample mean returns are too large relative to the difference between the sample covariances of the returns and the marginal utility from acquiring a unit of the numeraire good. Our findings suggest that these discrepancies are not a consequence of either the relatively small variability in aggregate acquisitions of goods, or our small estimates of relative risk aversion.

Notes:

Print version record

August 1984.