Change-points in affine arbitrage-free term structure models

In this paper, we investigate the timing of structural changes in yield curve dynamics in the context of an arbitrage-free, one latent and two macroeconomic factors, affine term structure model. We suppose that all parameters in the model are subject to changes at unknown time points. We fit a number of models to the U.S. term structure data and find support for three change-points. We also find that the term structure and the risk premium are materially different across regimes and that the out-of-sample forecasts of the term structure improve from incorporating regime changes.