English, Article, Journal or magazine article edition: Switching Regimes in the Term Structure of Interest Rates During U.S. Post-War: A case for the Lucas proof equilibrium? Jesús Vázquez

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Bookmark: http://trove.nla.gov.au/version/160746
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Switching Regimes in the Term Structure of Interest Rates During U.S. Post-War: A case for the Lucas proof equilibrium?
Author
  • Jesús Vázquez
Physical Description
  • preprint
Notes
  • Farmer (1991) suggests that in a model in which there are multiple rational expectations (RE) equilibria agents may find it useful to coordinate their expectations in a unique RE equilibrium which is immune to the Lucas Critique. In this paper, we evaluate Lucas proof (LP) equilibrium performance in the context of the term structure of interest rates model by using post-war US data. Estimation results show that the LP equilibrium exhibits some important features of the data that are not reproduced by the fundamental equilibrium. For instance, the short rate behaves as a random walk in a regime characterized by low conditional volatility, whereas the term spread Granger-causes changes in the short-rate in periods characterized by high conditional volatility.
  • Lucas proof, term structure, switching-regimes
  • RePEc:cea:doctra:e2004_11
Language
  • English
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