UK macroeconomic volatility and the term structure of interest rates
AbstractThis 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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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 11/28.
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- Peter Spencer & Zhuoshi Liu, .
"An Open-Economy Macro-Finance Model of Internatinal Interdependence: The OECD, US and the UK,"
09/16, Department of Economics, University of York.
- Spencer, Peter & Liu, Zhuoshi, 2010. "An open-economy macro-finance model of international interdependence: The OECD, US and the UK," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 667-680, March.
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