  In this paper, the relevance of the Feller conditions in discrete time
macro-finance term structure models is investigated. The Feller conditions are
usually imposed on a continuous time multivariate square root process to ensure
that the roots have nonnegative arguments. For a discrete time approximate
model, the Feller conditions do not give this guarantee. Moreover, in a
macro-finance context the restrictions imposed might be economically
unappealing. At the same time, it has also been observed that even without the
Feller conditions imposed, for a practically relevant term structure model,
negative arguments rarely occur. Using models estimated on German data, we
compare the yields implied by (approximate) analytic exponentially affine
expressions to those obtained through Monte Carlo simulations of very high
numbers of sample paths. It turns out that the differences are rarely
statistically significant, whether the Feller conditions are imposed or not.
Moreover, economically the differences are negligible, as they are always below
one basis point.
