Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43260
Authors: 
Hautsch, Nikolaus
Ou, Yangguoyi
Year of Publication: 
2009
Series/Report no.: 
CFS Working Paper 2009/03
Abstract: 
We propose a Nelson-Siegel type interest rate term structure model where the underlying yield factors follow autoregressive processes with stochastic volatility. The factor volatilities parsimoniously capture risk inherent to the term structure and are associated with the time-varying uncertainty of the yield curve's level, slope and curvature. Estimating the model based on U.S. government bond yields applying Markov chain Monte Carlo techniques we find that the factor volatilities follow highly persistent processes. We show that slope and curvature risk have explanatory power for bond excess returns and illustrate that the yield and volatility factors are closely related to industrial capacity utilization, inflation, monetary policy and employment growth.
Subjects: 
Term Structure Modelling
Yield Curve Risk
Stochastic Volatility
Factor Models
Macroeconomic Fundamentals
JEL: 
C5
E4
G1
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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