Modelling the Yield Curve

Mark Taylor

No 1991/134, IMF Working Papers from International Monetary Fund

Abstract: We test and estimate a variety of alternative models of the yield curve, using weekly, high-quality U.K. data. We extend the Campbell-Shiller technique to the overlapping data case and apply it to reject the pure expectations hypothesis under rational expectations. We also find that risk measures, in the form of conditional interest rate volatility, are unable to explain the term premium. A simple, market segmentation approach is, however, moderately successful in explaining the term premium.

Keywords: WP; market segmentation; interest rates; term structure; expectations; risk; redemption yield; yield gap; Taylor series; interest rate data; U.K. yield curve; bond maturity; n-period bond; short interest; T-Bill rate; moving average; redemption value; term premia; Yield curve; Treasury bills and bonds; Bonds; Short term interest rates; Vector autoregression (search for similar items in EconPapers)
Pages: 38
Date: 1991-12-01
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Journal Article: Modelling the Yield Curve (1992)
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