Abstract
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.
Original language | English |
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Article number | nbs004 |
Pages (from-to) | 302-334 |
Number of pages | 33 |
Journal | Journal of Financial Econometrics |
Volume | 11 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2013 Mar |
Keywords
- Bayesian inference
- Change-points
- Macro-finance
- Marginal likelihood
- Markov chain monte carlo
- Regime changes
- State-space model
- Stochastic discount factor
- Term premium
- Yield curve
ASJC Scopus subject areas
- Finance
- Economics and Econometrics