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Regime switching in bond yield and spread dynamics

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  • Monfort, Alain

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Abstract

This doctoral thesis develops regime-switching models of the term structure of interest rates. A general framework is proposed to model the joint dynamics of yield curves associated with different debtors (Chapter 2). This framework is exploited to analyse the fluctuations of ten euro-area sovereign yield curves over the period 1999-2012 (Chapter 3). In this model, a crisis regime is key to account for the increase in spread volatility during the financial crisis. Also, this study shows that market liquidity is an important determinant of bond prices. The model is then completed in order to explore potential causality relationships between two kinds of stresses: liquidity- and credit-related stresses (Chapter 4). Finally, the influence of monetary policy on the yield curve is investigated by means of a term structure model where an innovative use of regime-switching techniques makes it possible to capture salient features of the dynamics of monetary-policy rates (chapter 5).

Suggested Citation

  • Renne, Jean-Paul, 2013. "Regime switching in bond yield and spread dynamics," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/13651 edited by Monfort, Alain.
    • Handle: RePEc:dau:thesis:123456789/13651
    Note: dissertation
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    References listed on IDEAS

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    1. Pietro Veronesi & Francis Yared, 1999. "Short and Long Horizon Term and Inflation Risk Premia in the US Term Structure: Evidence from an Integrated Model for Nominal and Real Bond Prices under Regime Shifts," CRSP working papers 508, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. Vayanos, Dimitri, 2004. "Flight to quality, flight to liquidity, and the pricing of risk," LSE Research Online Documents on Economics 456, London School of Economics and Political Science, LSE Library.
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    4. Shu Wu & Yong Zeng, 2005. "A General Equilibrium Model Of The Term Structure Of Interest Rates Under Regime-Switching Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(07), pages 839-869.
    5. Svensson, L.E.O., 1994. "Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994," Papers 579, Stockholm - International Economic Studies.
    6. Stanton, Richard, 1997. "A Nonparametric Model of Term Structure Dynamics and the Market Price of Interest Rate Risk," Journal of Finance, American Finance Association, vol. 52(5), pages 1973-2002, December.
    7. John C. Williams, 2011. "Unconventional monetary policy: lessons from the past three years," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
    8. van Norden Simon & Vigfusson Robert, 1998. "Avoiding the Pitfalls: Can Regime-Switching Tests Reliably Detect Bubbles?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(1), pages 1-24, April.
    9. Wei, Jason Z., 2003. "A multi-factor, credit migration model for sovereign and corporate debts," Journal of International Money and Finance, Elsevier, vol. 22(5), pages 709-735, October.
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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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