Time-Varying Volatility and the Dynamic Behavior of the Term Structure
AbstractIn this paper, we consider a framework with which the cross sectional and time series behavior of the yield curve can be studied simultaneously. We examine the relationship between the yield curve and the time-varying conditional volatility of the Treasury bill market. We demonstrate that differently shaped yield curves can result given different combinations of volatility and expectations about future spot rates. Moreover, adjusting the forward rate for the volatility related liquidity premium can improve its performance as a predictor of future spot rates at least for the period from August 1964 to August 1979.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3682.
Date of creation: Apr 1991
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Publication status: published as Journal of Money, Credit and Banking, 1993, vol. 25, issue 3, pages 336-49.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Engle, Robert F & Ng, Victor K, 1993. "Time-Varying Volatility and the Dynamic Behavior of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 336-49, August.
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