The role of uncertainty in the term structure of interest rates: A GARCH-ATSM approach

Junko Koeda; Ryo Kato

doi:10.1080/00036846.2015.1021454

The role of uncertainty in the term structure of interest rates: A GARCH-ATSM approach

Junko Koeda^*, Ryo Kato

^*Corresponding author for this work

School of Political Science and Economics

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

This article examines the roles of uncertainties regarding various macro-variables in determining risk premiums of bond yields. We develop a multivariate GARCH-VAR to quantify uncertainties regarding inflation, real activities and monetary policy as time-varying conditional variances. We jointly estimate the multivariate GARCH and no-arbitrage bond pricing equations using a maximum likelihood method. The results indicate that the inflation uncertainty is the largest contributor to the dynamics of long-term yields since the 1980s, while the monetary policy uncertainty also plays noticeable roles.

Original language	English
Pages (from-to)	3710-3722
Number of pages	13
Journal	Applied Economics
Volume	47
Issue number	34-35
DOIs	https://doi.org/10.1080/00036846.2015.1021454
Publication status	Published - 2015 Jul 27

Keywords

GARCH
estimation
financial
term structure of interest rates

ASJC Scopus subject areas

Economics and Econometrics

Access to Document

10.1080/00036846.2015.1021454

Cite this

@article{cffc7af27c8f48578ccb64d436df27f1,

title = "The role of uncertainty in the term structure of interest rates: A GARCH-ATSM approach",

abstract = "This article examines the roles of uncertainties regarding various macro-variables in determining risk premiums of bond yields. We develop a multivariate GARCH-VAR to quantify uncertainties regarding inflation, real activities and monetary policy as time-varying conditional variances. We jointly estimate the multivariate GARCH and no-arbitrage bond pricing equations using a maximum likelihood method. The results indicate that the inflation uncertainty is the largest contributor to the dynamics of long-term yields since the 1980s, while the monetary policy uncertainty also plays noticeable roles.",

keywords = "GARCH, estimation, financial, term structure of interest rates",

author = "Junko Koeda and Ryo Kato",

note = "Funding Information: Junko Koeda acknowledges funding from the Nomura Foundation for Academic Promotion and the Ministry of Education, Culture, Sports, Science, and Technology of the Japanese government [grant number 26870124]. Views expressed in this article are those of the authors and do not necessarily reflect the official views of the Bank of Japan. All remaining errors are our own. Publisher Copyright: {\textcopyright} 2015, {\textcopyright} 2015 Taylor & Francis.",

year = "2015",

month = jul,

day = "27",

doi = "10.1080/00036846.2015.1021454",

language = "English",

volume = "47",

pages = "3710--3722",

journal = "Applied Economics",

issn = "0003-6846",

publisher = "Routledge",

number = "34-35",

}

TY - JOUR

T1 - The role of uncertainty in the term structure of interest rates

T2 - A GARCH-ATSM approach

AU - Koeda, Junko

AU - Kato, Ryo

N1 - Funding Information: Junko Koeda acknowledges funding from the Nomura Foundation for Academic Promotion and the Ministry of Education, Culture, Sports, Science, and Technology of the Japanese government [grant number 26870124]. Views expressed in this article are those of the authors and do not necessarily reflect the official views of the Bank of Japan. All remaining errors are our own. Publisher Copyright: © 2015, © 2015 Taylor & Francis.

PY - 2015/7/27

Y1 - 2015/7/27

N2 - This article examines the roles of uncertainties regarding various macro-variables in determining risk premiums of bond yields. We develop a multivariate GARCH-VAR to quantify uncertainties regarding inflation, real activities and monetary policy as time-varying conditional variances. We jointly estimate the multivariate GARCH and no-arbitrage bond pricing equations using a maximum likelihood method. The results indicate that the inflation uncertainty is the largest contributor to the dynamics of long-term yields since the 1980s, while the monetary policy uncertainty also plays noticeable roles.

AB - This article examines the roles of uncertainties regarding various macro-variables in determining risk premiums of bond yields. We develop a multivariate GARCH-VAR to quantify uncertainties regarding inflation, real activities and monetary policy as time-varying conditional variances. We jointly estimate the multivariate GARCH and no-arbitrage bond pricing equations using a maximum likelihood method. The results indicate that the inflation uncertainty is the largest contributor to the dynamics of long-term yields since the 1980s, while the monetary policy uncertainty also plays noticeable roles.

KW - GARCH

KW - estimation

KW - financial

KW - term structure of interest rates

UR - http://www.scopus.com/inward/record.url?scp=84929029797&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84929029797&partnerID=8YFLogxK

U2 - 10.1080/00036846.2015.1021454

DO - 10.1080/00036846.2015.1021454

M3 - Article

AN - SCOPUS:84929029797

SN - 0003-6846

VL - 47

SP - 3710

EP - 3722

JO - Applied Economics

JF - Applied Economics

IS - 34-35

ER -

The role of uncertainty in the term structure of interest rates: A GARCH-ATSM approach

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this