is given to the source. A Preferred-Habitat Model of the Term Structure of Interest Rates

helpful comments. We have especially benefited from an extensive set of insightful comments by John Cochrane, and from a communication by Xavier Gabaix on linearity-generating processes. Financial support from the Paul Woolley Centre at the LSE is gratefully acknowledged. The views expressed in this paper are those of the authors and not of Bank of America Merrill Lynch, any of its affiliates, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications