The termstructureofinterestratesinaDSGEmodelwith recursivepreferences

A dynamicstochasticgeneralequilibrium(DSGE)modelinwhichhouseholdshaveEpstein and Zinrecursivepreferencesissolvedwithperturbation.Theparametersgoverning preferencesandtechnologyareestimatedbymaximumlikelihoodusingmacroeconomic data andthetermstructureofinterestrates.Theestimatesimplyalargeriskaversion,an elasticityofintertemporalsubstitutionhigherthanone,andsubstantialadjustmentcosts. Furthermore,thepaperidentifiesthetensionswithinthemodelbyestimatingiton subsetsofthesedata.Theanalysisconcludesbypointingoutpotentialextensionsthat mayimprovethemodel’sfit