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UK macroeconomic volatility and the term structure of interest rates

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  • Peter Spencer

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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File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/2011/1128.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 11/28.

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Handle: RePEc:yor:yorken:11/28

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Web page: http://www.york.ac.uk/economics/
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Cited by:
  1. Peter Spencer & Zhuoshi Liu, . "An Open-Economy Macro-Finance Model of Internatinal Interdependence: The OECD, US and the UK," Discussion Papers 09/16, Department of Economics, University of York.

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