Are Analysts Right? Macroeconomic Factors and Regime Switching in the Term Structure of Interest Rates
43 Pages Posted: 19 Mar 2008 Last revised: 14 Mar 2010
Date Written: February 15, 2008
Abstract
The validity of analysts' beliefs that the dependence of bond prices on crude oil prices changes sign over time and that the overall economy performance is correlated with the slope of the yield curve is examined. These beliefs are mapped into the term structure of interest rates framework by allowing for regime switching in the term structure and by using crude oil prices and an overall economy performance index (CFNAI) as factors. Fitting is done using Gibbs sampling, which allows for fewer assumptions on the regime switching parameters than classical methods and, thus, provides a more flexible model. The predicted yields are calculated using the eigenfunction expansion method.
Keywords: Quadratic Term Structure Models, regime switching, inflation rates, oil prices, Gibbs sampling, eigenfunction expansion
JEL Classification: G12, C11, C63, Q49
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Specification Analysis of Affine Term Structure Models
By Qiang Dai and Kenneth J. Singleton
-
Specification Analysis of Affine Term Structure Models
By Qiang Dai and Kenneth J. Singleton
-
By Andrew Ang and Monika Piazzesi
-
By Andrew Ang and Monika Piazzesi
-
By John H. Cochrane and Monika Piazzesi
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton