English, Article, Journal or magazine article edition: Macro volatility in a model of the UK Gilt edged bond market Peter Spencer

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Bookmark: http://trove.nla.gov.au/version/34448
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Macro volatility in a model of the UK Gilt edged bond market
Author
  • Peter Spencer
Physical Description
  • preprint
Notes
  • This paper develops an arbitrage-free macroeconomic model of the yield curve and uses this to explain the behaviour of the UK Treasury bond market. Unlike previous models of this type, which assume a homoscedastic error process I develop a general affine model which allows volatility to be conditioned by the level of inflation (and possibly other macroeconomic variables). In my preferred empirical specification conditional volatility and risk premia are affine in the level of inflation. I test this model against more general specifications in which the risk premia also depend upon interest rate and other macro variables, but find little evidence of these wider effects. The resulting specification provides a parsimonious explanation of the behaviour of the UK yield curve, keying it in to the behaviour of the macroeconomy.
  • Times series models, Affine term structure model, macroeconomic factors, monetary policy
  • RePEc:mmf:mmfc06:73
Language
  • English
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