Modeling the Term Structure of Interest Rates Under Nonseparable Utilityand Duriability of Goods

Kenneth B. Dunn and Kenneth Singleton

No 1415, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

Date: 1984-08
Note: EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published as Dunn, Kenneth B. and Kenneth J. Singleton. "Modeling the Term Structure of Interest Rates Under Nonseparable Utility and Durability of Goods," Journal of Financial Economics, Vol. 17, pp. 27-55, 1986.

Downloads: (external link)
http://www.nber.org/papers/w1415.pdf (application/pdf)

Related works:
Journal Article: Modeling the term structure of interest rates under non-separable utility and durability of goods (1986)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:1415

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1415

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().