Revisiting the shape of the yield curve: the effect of interest rate volatility

Charlotte Christiansen and Jesper Lund
Additional contact information
Jesper Lund: Nykredit Bank, Postal: Nykredit Bank, Denmark

No 02-3, Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper examines the relationship between interest-rate volatility and the shape of the yield curve. The yield curve is parsimoniously described by its level, slope, and curvature. The level, the slope and the curvature are analyzed within a trivariate heteroskedastic model, where the conditional short-rate volatility is included in the mean specification. The slope and the curvature depend positively and significantly on the short-rate volatility. The effect of the interest rate volatility is more pronounced for the curvature than for the slope. Differences between subperiods are explored, as are differences across the maturity spectrum.

Keywords: Multivariate GARCH-M; Short-Rate Volatility; Yield Curve Curvature; Yield Curve Shape; Yield Curve Slope (search for similar items in EconPapers)
Pages: 28 pages
Date: 2002-03-13
New Economics Papers: this item is included in nep-fin and nep-fmk
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:hhb:aarfin:2002_003

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