Working Paper
Accounting for a Shift in Term Structure Behavior with No-Arbitrage and Macro-Finance Models
Abstract: This paper examines a shift in the dynamics of the term structure of interest rates in the U.S. during the mid-1980s. We document this shift using standard interest rate regressions and using dynamic, affine, no-arbitrage models estimated for the pre- and post-shift subsamples. The term structure shift largely appears to be the result of changes in the pricing of risk associated with a "level" factor. Using a macro-finance model, we suggest a link between this shift in term structure behavior and changes in the dynamics and risk pricing of the Federal Reserve’s inflation target as perceived by investors.
https://doi.org/10.24148/wp2004-25
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https://www.frbsf.org/research-and-insights/publications/working-papers/2005/11/accounting-for-a-shift-in-term-structure-behavior-with-no-arbitrage-and-macro-finance-models/
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https://fraser.stlouisfed.org/title/working-papers-federal-reserve-bank-san-francisco-7038/recent-shift-term-structure-behavior-a--arbitrage-macro-finance-perspective-639189
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Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2005-11-01
Number: 2004-25
Note: PDF date: November 2004. Revised November 2005 and July 2005. Previously published under the title: The Recent Shift in Term Structure Behavior from a No-Arbitrage Macro-Finance Perspective