Computing equilibrium bond prices in the Vayanos-Vila model

Abstract

We develop tools for computing equilibrium bond prices for the discrete-time version of the Vayanos–Vila (2009) model. With the maturity structure included in pricing factors, factor loadings for equilibrium bond yields depends critically on parameters describing maturity structure dynamics and other model parameters. An illustrative example shows that the effect on the yield curve of a supply shock originating in a given maturity, although hump-shaped around the originating maturity, is to change yields broadly across all maturities. ; JEL Classification Codes: E43, E58, G12 ; This paper was formerly circulated as "Affine Term Structure Pricing with Bond Supply As Factors"(Center for Quantitative Economic Research Working Paper 16-01, Federal Reserve Bank of Atlanta, April 2016). ; The research reported here was supported by grants-in-aid from the Ministry of Education, Culture, Sports, Science, and Technology of the Japanese government (grant number 25285097 and 26870124). ; http://www.grips.ac.jp/list/jp/facultyinfo/hayashi_fumio/