Regime Switching in the Yield Curve

Charlotte Christiansen

No 02-13, Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: The paper investigates the effect of interest-rate variance on the shape of the

yield curve using a bivariate 2-state Markov switching model for the short-rate changes

and the yield curve slope. The two states are characterized by the variance of the shortrate

changes: Low and high variance. In the high variance regime the yield curve becomes

steeper with the interest-rate variance, in the low variance regime the slope is independent

hereof. A non-switching specification amounts to averaging across the two states. The

economy is in the high variance state during unusual economic periods.

Keywords: Interest-rate variance; Regime switching; SWARCH; Yield curve; Yield curve slope (search for similar items in EconPapers)
Pages: 31 pages
Date: 2002-05-09
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www.hha.dk/fin/finance/Research/D02_13.PDF (application/pdf)

Related works:
Journal Article: Regime switching in the yield curve (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:hhb:aarfin:2002_013

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