Stochastic trends in consumption and the term structure of interest rates

Lance A. Fisher*, Paul A. Richardson

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This paper analyzes the sign of expected term premiums on real bonds in a representative agent model of general equilibrium for two decompositions of the log endowment process into permanent and transitory components. In the limit, as the maturity of a bond increases, the premium is positive for the decomposition in which the permanent and transitory components are uncorrelated and is positive (negative) for the Beveridge-Nelson decomposition in which they are perfectly correlated when an endowment innovation changes the permanent component by less (more) than the innovation itself.

Original languageEnglish
Pages (from-to)289-304
Number of pages16
JournalJournal of Macroeconomics
Volume14
Issue number2
DOIs
Publication statusPublished - 1992
Externally publishedYes

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