Time-Varying Volatility and the Dynamic Behavior of the Term Structure

Robert Engle and Victor K Ng

Journal of Money, Credit and Banking, 1993, vol. 25, issue 3, 336-49

Abstract: In this paper, the authors consider a framework in which the cross-sectional and time-series behavior of the yield curve can be studied simultaneously. They examine the relationship between the yield curve and the time-varying conditional volatility of the Treasury bill market. The authors demonstrate that different shaped yield curves can result given different combinations of volatility and expectations about future spot rates. Moreover, adjusting the forward rate for the volatility related forward premium can improve its performance as a predictor for the future spot rate. Copyright 1993 by Ohio State University Press.

Date: 1993
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Working Paper: Time-Varying Volatility and the Dynamic Behavior of the Term Structure (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:25:y:1993:i:3:p:336-49

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