Novo Working Paper - Some Comments on a Macro-Finance Model with Stochastic Volatility

Some Comments on a Macro-Finance Model with Stochastic Volatility

Márcio Laurini

(IBMEC Business School)

João Frois Caldeira

(Departamento de Economia - UFRGS)

Registered author(s):

Abstract

This paper assesses the relation between the yield curve and the main macroeconomic variables in the U.S. between early 1970s and 2000. We revisit the macro-finance model of Diebold et al. (2006) with the inclusion of a stochastic volatility structure for the latent factors and macroeconomic variables. The results indicate that the inclusion of stochastic volatilities modifies the patterns of persistence and the impulse response function (IRF), and improves the in-sample fit of the model.