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Regime shifts, risk premiums in the term structure, and the business cycle

Publication ,  Journal Article
Bansal, R; Tauchen, G; Zhou, H
Published in: Journal of Business and Economic Statistics
October 1, 2004

Recent evidence indicates that using multiple forward rates sharply predicts future excess returns on U.S. Treasury Bonds, with the R2's being around 30%. The projection coefficients in these regressions exhibit a distinct pattern that relates to the maturity of the forward rate. These dimensions of the data, in conjunction with the transition dynamics of bond yields, offer a serious challenge to term structure models. In this article we show that a regime-shifting term structure model can empirically account for these challenging data features. Alternative models, such as affine specification, fail to account for these important features. We find that regimes in the model are intimately related to bond risk premia and real business cycles.

Duke Scholars

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Published In

Journal of Business and Economic Statistics

DOI

ISSN

0735-0015

Publication Date

October 1, 2004

Volume

22

Issue

4

Start / End Page

396 / 409

Related Subject Headings

  • Econometrics
  • 49 Mathematical sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics
  • 01 Mathematical Sciences
 

Citation

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Bansal, R., Tauchen, G., & Zhou, H. (2004). Regime shifts, risk premiums in the term structure, and the business cycle. Journal of Business and Economic Statistics, 22(4), 396–409. https://doi.org/10.1198/073500104000000398
Bansal, R., G. Tauchen, and H. Zhou. “Regime shifts, risk premiums in the term structure, and the business cycle.” Journal of Business and Economic Statistics 22, no. 4 (October 1, 2004): 396–409. https://doi.org/10.1198/073500104000000398.
Bansal R, Tauchen G, Zhou H. Regime shifts, risk premiums in the term structure, and the business cycle. Journal of Business and Economic Statistics. 2004 Oct 1;22(4):396–409.
Bansal, R., et al. “Regime shifts, risk premiums in the term structure, and the business cycle.” Journal of Business and Economic Statistics, vol. 22, no. 4, Oct. 2004, pp. 396–409. Scopus, doi:10.1198/073500104000000398.
Bansal R, Tauchen G, Zhou H. Regime shifts, risk premiums in the term structure, and the business cycle. Journal of Business and Economic Statistics. 2004 Oct 1;22(4):396–409.
Journal cover image

Published In

Journal of Business and Economic Statistics

DOI

ISSN

0735-0015

Publication Date

October 1, 2004

Volume

22

Issue

4

Start / End Page

396 / 409

Related Subject Headings

  • Econometrics
  • 49 Mathematical sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 14 Economics
  • 01 Mathematical Sciences