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Dynamic portfolio models with long-term restrictions

An application to households and the banking sector in the Netherlands

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Summary

Dynamic portfolio models have obtained a prominent place in the economic literature. As a rule, the problem of implausible long-term coefficients is ignored. In particular the long-term interest rate parameters are not in accordance with the theory of gross substitution. This shortcoming is especially serious when such a portfolio model is used as part of a larger macroeconomic model. A standard estimation-under-restriction procedure cannot be applied as these long-term coefficients are nonlinear functions of short-term interest rate coefficients and of the coefficients of the adjustment process. This paper introduces a new estimation procedure, which is used to estimate portfolio models for households and banks in The Netherlands.

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Authors and Affiliations

  1. Econometric Research and Special Studies Department, De Nederlandsche Bank, The Netherlands

    P. J. A. Van Els

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  1. J. A. Bikker
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  2. P. J. A. Van Els
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Bikker, J.A., Van Els, P.J.A. Dynamic portfolio models with long-term restrictions. De Economist 141, 515–542 (1993). https://doi.org/10.1007/BF02375170

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  • DOI: https://doi.org/10.1007/BF02375170

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