Keywords: Affine models, expectations hypothesis, latent factors
Abstract: This paper examines the empirical properties of a two-factor affine
model of the term structure of interest rates, estimated with LIBOR
and interest rate swap data from 1989 through 2001. Despite its
relative simplicity, the model fits the interest rate data
remarkably well, both across time and maturity, and identifies
changes in the current and expected stance of monetary policy as
primary movers of the yield curve.
Full paper (363 KB PDF)
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Last update: May 2, 2003