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A macro-finance term structure model with multivariate stochastic volatility

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  • Laurini, Márcio P.
  • Caldeira, João F.

Abstract

This article examines some consequences of the presence of non-affine structures of multivariate stochastic volatility in a dynamic Nelson–Siegel model with macroeconomic variables. The results indicate that this non-affine model achieves superior in-sample fit for the observed yields, captures persistence patterns more consistent with stylized facts and empirical measures and also has greater explanatory power for the conditional volatility observed in yields compared to affine models and models without macroeconomic variables.

Suggested Citation

  • Laurini, Márcio P. & Caldeira, João F., 2016. "A macro-finance term structure model with multivariate stochastic volatility," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 68-90.
    • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:68-90
    DOI: 10.1016/j.iref.2016.03.008
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    2. Polat, Onur & Ozkan, Ibrahim, 2019. "Transmission mechanisms of financial stress into economic activity in Turkey," Journal of Policy Modeling, Elsevier, vol. 41(2), pages 395-415.

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    More about this item

    Keywords

    Macro-finance; Term structure of interest rates; Stochastic volatility; MCMC; Non-affine; factor models;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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