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Identification of Gaussian Term Structure Models with Observable Factors

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  • Matsumura, Marco
  • Moreira, Ajax
  • Vicente, Jose Valentim Machado

Abstract

We define invariant operators for term structure models with observable factors, and show that they preserve the likelihood. Thus, the models need to be identified, and alternative restrictions are proposed. The choice of identification keeps the responses of the yield curve and of the observable factors to state variable shocks unchanged. However, it may affect the latent response.

Suggested Citation

  • Matsumura, Marco & Moreira, Ajax & Vicente, Jose Valentim Machado, 2011. "Identification of Gaussian Term Structure Models with Observable Factors," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 31(2), December.
    • Handle: RePEc:sbe:breart:v:31:y:2011:i:2:a:5835
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