An Admissible Macro-Finance Model of the US Treasury Market

Peter Spencer

Multinational Finance Journal, 2009, vol. 13, issue 1-2, 1-38

Abstract: This paper develops a macro-finance model of the yield curve and uses this to explain the behavior of the US Treasury market. Unlike previous macro-finance models which assume a homoscedastic error process and suppose that the one-period return is directly observable, I develop a general affine model which relaxes these assumptions. My empirical specification uses a single conditioning factor and is thus the macro-finance analogue of the EA1(N) specification of the mainstream finance literature. This model provides a decisive rejection of the standard EA0(N) macro-finance specification. The resulting specification provides a flexible 10-factor explanation of the behavior of the US yield curve, keying it in to the behavior of the macroeconomy.

Keywords: n/a (search for similar items in EconPapers)
JEL-codes: C13 C32 E30 E44 E52 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:13:y:2009:i:1-2:p:1-38

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