Dear Johannes,
In a DSGE model, could both corporate bond yield and federal funds rate be used as observable variables? Or whether they could be used simultaneously as observable variables depends on the magnitude of their correlation?
Thank you very much and look forward to hearing from you.
Best regards,
Jesse
PhD Candidate
The question is incomplete. Why should you not be able to use them both? The only issue that might arise is when the model implies that the two should be the same.
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Dear Johannes,
Thank you very much for your helpful answer. I intend to model the risk premium between federal funds rate and corporate bond yield as a shock, and I need the corporate bond yield and federal funds rate to be both observable so as to identify the risk premium shock. Does this sound feasible?
Thank you very much again and look forward to hearing from you.
Best regards,
Jesse
PhD Candidate
Yes, that should be possible.
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