UK macroeconomic volatility and the term structure of interest rates

Peter Spencer

Discussion Papers from Department of Economics, University of York

Abstract: This paper uses a macro-finance model to examine the ability of the gilt market to predict fluctuations in macroeconomic volatility. The econometric model is a development of the standard ‘square root’ volatility model, but unlike the conventional term structure speci…cation it allows for separate volatility and in‡ation trends. It finds that although volatility and inflation trends move independently in the short run, they are cointegrated. Bond yields provide useful information about macroeconomic volatility, but a better indicator can be developed by combining this with macroeconomic information.

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Journal Article: UK Macroeconomic Volatility and the Term Structure of Interest Rates (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:11/28

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