Data: An Explanation of Real US Interest Rates with an Exchange Economy
Description
The hypothesis is that an asset pricing model can explain real US short term bond interest rates. This is tested by using data to construct the three shocks of the model and inputting the shocks back into the model to produce the model generated US real bond interest rate from 1975-2020. This is then compared to the actual US data. The notable results are that the data matches the model generated data with a high correlation and relative volatility near one, indicating a close fit. The quarterly data set presents all variables used to fit the model to the data, for 1975Q1 to 2020Q4. All data series after construction are transformed by taking natural logarithms and detrending them to be in deviations from their respective trends. In the filtered results, we used a Hodrick-Prescott filter with λ=1600. In constructing real output, consumption, investment, government expenditures, and net exports real per capita series from raw data we follow Chari et al. (2007). [Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R., 2007. "Business Cycle Accounting", Econometrica, vol. 75(3), pp. 781--836, May.] The final output series used is then obtained by deducted government expenditures and net exports from the total output to be consistent with our model. Quarterly employment and physical capital are obtained by interpolating annual data using the method in Chari et al. (2007). The goods sector labor share is measured by the Total Full-Time and Part-Time Employees minus the Full-Time and Part-Time Employees in Finance and Insurance Services (FIS) and divided by the Civilian Noninstitutional Population. The proxy for the banking time share is the same as employees in FIS as divided by the Civilian Noninstitutional Population. Leisure is then the residual share. The quarterly physical capital stock is constructed as the sum of the annual Current cost net stock of consumer durables and fixed assets interpolated. It is transformed into real terms by normalizing with the implicit price deflator for durable goods. The inflation measure is the CPI index, quarterly, with the percentage change from the year before (on an annual basis). Velocity measures are constructed by dividing real consumption with the respective real money stocks. The nominal series for exchange credit and deposits are transformed to real terms by normalizing with the CPI index. The data can be used in conjunction with the Matlab Code files for the model, which are attached here. This allows one to replicate the model results.
Files
Steps to reproduce
To reproduce the model results, the matlab codes are attached here, for use with the data set that is attached here. The ReadMe instructions for the matlab codes are attached. Also there is a Listing of the data series attached here.