Accounting for a Shift in Term Structure Behavior with No-Arbitrage and Macro-Finance Models

Glenn Rudebusch and Tao Wu ()

No 2004-25, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper examines a shift in the dynamics of the term structure of interest rates in the U.S. during the mid-1980s. We document this shift using standard interest rate regressions and using dynamic, affine, no-arbitrage models estimated for the pre- and post-shift subsamples. The term structure shift largely appears to be the result of changes in the pricing of risk associated with a "level" factor. Using a macro-finance model, we suggest a link between this shift in term structure behavior and changes in the dynamics and risk pricing of the Federal Reserve’s inflation target as perceived by investors.

Keywords: Interest rates; Monetary policy; Econometric models (search for similar items in EconPapers)
Pages: 44
Date: 2005-11-01
Note: PDF date: November 2004. Revised November 2005 and July 2005. Previously published under the title: The Recent Shift in Term Structure Behavior from a No-Arbitrage Macro-Finance Perspective
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Accounting for a Shift in Term Structure Behavior with No-Arbitrage and Macro-Finance Models (2007)
Journal Article: Accounting for a Shift in Term Structure Behavior with No‐Arbitrage and Macro‐Finance Models (2007)
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DOI: 10.24148/wp2004-25

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