EconPapers    
Economics at your fingertips  
 

The Central Tendency: A Second Factor in Bond Yields

Pierluigi Balduzzi, Sanjiv Das () and Silverio Foresi

No 6325, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was constant. However, since longer-maturity bond prices incorporate information" about the central tendency, longer-maturity bond yields can be used to predict future short-term" rate movements. We develop a two-factor model of the term-structure which implies that a" linear combination of any two rates can be used as a proxy for the central tendency. Based on" this central-tendency proxy, we estimate a model of the one-month rate which performs better" than models which assume the central tendency to be constant.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1997-12
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Published as Review of Economics and Statistics, Vol. 80, no. 1 (February 1998): 62-72.

Downloads: (external link)
http://www.nber.org/papers/w6325.pdf (application/pdf)

Related works:
Journal Article: The Central Tendency: A Second Factor In Bond Yields (1998) Downloads
Working Paper: The Central Tendency: A Second Factor in Bond Yields (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6325

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6325

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-05-26
Handle: RePEc:nbr:nberwo:6325