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    Information in the term structure of yield curve volatility

    Cieslak, A. and Povala, Pavol (2013) Information in the term structure of yield curve volatility. Working Paper. Social Science Electronic Publishing, Rochester, New York, USA.

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    Abstract

    We study volatility of US Treasuries. We propose a term structure model with stochastically correlated risks, which we estimate using realized volatilities and options. We identify time-varying volatilities and comovement of short-rate expectations and term premia. Volatility of short-rate expectations rises before recessions, predicts economic activity beyond the term spread, and covaries with measures of monetary policy uncertainty. Term premia become increasingly volatile in the aftermath of recessions and when economic policy uncertainty is high. Their correlation with expected short-rates fluctuates over time but is positive on average. Within an affine model, volatility has a small effect on the first moments of yields.

    Metadata

    Item Type: Monograph (Working Paper)
    Keyword(s) / Subject(s): interest rate risk, realized yield covariance matrix, affine models, macro uncertainty, liquidity
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: Sarah Hall
    Date Deposited: 15 Apr 2014 11:09
    Last Modified: 06 Dec 2016 14:50
    URI: http://eprints.bbk.ac.uk/id/eprint/9605

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