EconPapers    
Economics at your fingertips  
 

No-arbitrage macroeconomic determinants of the yield curve

Ruslan Bikbov and Mikhail Chernov ()

Journal of Econometrics, 2010, vol. 159, issue 1, 166-182

Abstract: No-arbitrage macro-finance models use variance decompositions to gauge the extent of association between the macro variables and yields. We show that results generated by this approach are sensitive to the order of variables in the recursive identification scheme. In a four-factor model, one may obtain 18 different sets of answers out of 24 possible. We propose an alternative measure that is based on levels of macro variables as opposed to shocks. We account for the correlation between the macro and latent factors via projection of the latter onto the former. As a result, the association between macro variables and yields can be computed uniquely via an R2. Macro variables explain 80% of the variation in the short rate and 50% of the slope, and 54% to 68% of the term premia.

Keywords: Macro-finance; models; Term; structure; Variance; decomposition; Kalman; filter (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-4076(10)00129-6
Full text for ScienceDirect subscribers only

Related works:
Working Paper: No-arbitrage macroeconomic determinants of the yield curve (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:159:y:2010:i:1:p:166-182

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-08-13
Handle: RePEc:eee:econom:v:159:y:2010:i:1:p:166-182