The recent shift in term structure behavior from a no-arbitrage macro-finance perspective

Glenn Rudebusch and Tao Wu ()

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

Abstract: This paper examines a recent shift in the dynamics of the term structure and interest rate risk. We first use standard yield-spread regressions to document such a shift in the U.S. in the mid-1980s. Over the pre- and post-shift subsamples, we then estimate dynamic, affine, no-arbitrage models, which exhibit a significant difference in behavior that can be largely attributed to changes over time in the pricing of risk associated with a ?level? factor. Finally, we suggest a link between the shift in term structure behavior and changes in the risk and dynamics of the inflation target as perceived by investors.

Keywords: Interest rates; Monetary policy; Econometric models (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (16)

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Working Paper: The Recent Shift in Term Structure Behavior from a No-Arbitrage Macro-Finance Perspective (2005)
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