Regime Switching in the Yield Curve

Charlotte Christiansen

No 02-13, Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: The paper investigates the effect of interest-rate variance on the shape of the

yield curve using a bivariate 2-state Markov switching model for the short-rate changes

and the yield curve slope. The two states are characterized by the variance of the shortrate

changes: Low and high variance. In the high variance regime the yield curve becomes

steeper with the interest-rate variance, in the low variance regime the slope is independent

hereof. A non-switching specification amounts to averaging across the two states. The

economy is in the high variance state during unusual economic periods.

Keywords: Interest-rate variance; Regime switching; SWARCH; Yield curve; Yield curve slope (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets
Date: Written 2002-05-09
View list of references View citations in EconPapers

Downloads: (external link)
http://www.hha.dk/fin/finance/Research/D02_13.PDF (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies
Address: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
Contact information at EDIRC.
Series data maintained by Helle Vinbaek Stenholt ().