From bond yield to macroeconomic instability: A parsimonious affine model
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comunitat-uji-handle2:10234/8643
comunitat-uji-handle3:10234/8644
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Title
From bond yield to macroeconomic instability: A parsimonious affine modelDate
2017-11-01Publisher
ElsevierBibliographic citation
RECCHIONI, Maria Cristina; TEDESCHI, Gabriele. From bond yield to macroeconomic instability: A parsimonious affine model. European Journal of Operational Research (2017), v. 262, issue 3, pp. 1116-1135Type
info:eu-repo/semantics/articlePublisher version
http://www.sciencedirect.com/science/article/pii/S0377221717303892Version
info:eu-repo/semantics/acceptedVersionSubject
Abstract
We present a hybrid Heston model with a common stochastic volatility to describe government bond yield dynamics. The model is analytically tractable and, therefore, can be efficiently estimated using the maximum ... [+]
We present a hybrid Heston model with a common stochastic volatility to describe government bond yield dynamics. The model is analytically tractable and, therefore, can be efficiently estimated using the maximum likelihood approach and a specific expansion in order to cope with the curse of dimensionality. Twofold is the model contribution. First, it captures changes in the yield volatility and predict future yield values of Germany, French, Italy and Spain. The result is an early-warning indicator which anticipates phases of instability characterizing the time series investigated. Then, the model describes convergence/divergence phenomena among European government bond yields and explores the countries’ reactions to a common monetary policy described through the EONIA interbank rate. We also investigate the potential of this indicator on U.S. data (treasury bills). [-]
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European Journal of Operational Research (2017), v. 262, issue 3Rights
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info:eu-repo/semantics/openAccess
info:eu-repo/semantics/openAccess
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