No-Arbitrage Near-Cointegrated Var(p) Term Structure Models, Term Premia and GDP Growth

38 Pages Posted: 16 Sep 2010 Last revised: 9 Jun 2011

See all articles by Caroline Jardet

Caroline Jardet

Banque de France

Alain Monfort

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Bureau of Economic Research (NBER); Maastricht University

Fulvio Pegoraro

Banque de France - Economics and Finance Research Center; CREST - Laboratoire de Finance et Assurance

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2009

Abstract

The recent macro-finance yield curve literature does not agree neither about term premia empirical properties nor about the importance or even the direction of its relationship with future economic activity. This paper proposes a two-step approach to handle both problems. First, in a VAR setting, we extract a reliable measure of the term premia by means of averaging estimators techniques aiming at optimally solving prediction problems when highly persistence processes are present and, thus, providing a so called Near-Cointegrated VAR(p) approach. Second, we analyze the dynamic response of the GDP to shocks on the term premia by using the New Information Response Function concept. First,we find that the NCVAR-based term premium measure is rather stable and contra-cyclical, with the expectation part accounting for most of the yield variability, which is consistent with the typical macroeconomic view. Second, we find that an increase of the long-term spread caused by a rise of a term premium induces two effects on future economic activity: the impact is negative for short horizons (less than one year), whereas it is positive for longer ones. Therefore, this result suggests that the above mentioned ambiguity could come from the fact that the sign of this relationship is changing over the period that follows the shock.

Keywords: Averaging Estimators, Persistence Problem, Near-Cointegration Analysis, No-Arbitrage Affine Term Structure Model, Term Premia, GDP Growth, New Information Response Functions

JEL Classification: C51, E43, E44, E47, G12

Suggested Citation

Jardet, Caroline and Monfort, Alain and Pegoraro, Fulvio, No-Arbitrage Near-Cointegrated Var(p) Term Structure Models, Term Premia and GDP Growth (June 1, 2009). Available at SSRN: https://ssrn.com/abstract=1676794 or http://dx.doi.org/10.2139/ssrn.1676794

Caroline Jardet (Contact Author)

Banque de France ( email )

31 rue croix des petits champs
75049 Paris Cedex 01
France

Alain Monfort

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France
+33 1 4117 6079 (Phone)
+33 1 4117 6046 (Fax)

National Bureau of Economic Research (NBER)

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Maastricht University

P.O. Box 616
Maastricht, 6200MD
Netherlands

Fulvio Pegoraro

Banque de France - Economics and Finance Research Center ( email )

31 rue Croix des Petits Champs
75049 Paris Cedex 01 France
France
00.33.(0)1.42.92.91.67 (Phone)
00.33.(0)1.42.92.48.18 (Fax)

CREST - Laboratoire de Finance et Assurance ( email )

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Bureau 1112 - Timbre J320
92245 Malafokk Cedex France, 92245
France
00.33.(0)1.41.17.77.97 (Phone)
00.33.(0)1.41.17.76.66 (Fax)

HOME PAGE: http://www.crest.fr/pageperso/pegoraro/pegoraro.htm

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