Generalized Squared - Autoregressive - Independent - VariableNominal Term Structure

Despite its many strengths, the SAINTS (Squared-Autoregressive-Independent-Variable Nominal Term Structure) model of Constantinides (1992) cannot be directly compared with other popular term structure models such as Vasicek (1977) and Cox, Ingersoll and Ross (1985) mainly because the stochastic discount factor of the model is exogenously spec-iied. The primary motivation of this paper is to nd an equilibrium which will support the given stochastic factor of the SAINTS model in the general equilibrium framework of Cox, Ingersoll and Ross (1985) model. We nd that there is a supporting general equilibrium, and more importantly the general equilibrium version of the SAINTS model is more general in its features, so that we call this modeìGeneralized SAINTS' (GSAINTS) model. The GSAINTS model is shown to nest some existing one-factor models such as Longstaa (1989), Beaglehole and Tenny (1992) and even a particularly parameterized version of Cox, Ingersoll and Ross (1985). In addition, the extension of this model to a two country framework is able to yield sign-switching correlations between the interest rates of the two countries, which is consistent with the stochastic behavior of the correlations documented in the empirical literature.