Guidolin, Massimo (contributor); … - 2005
stochastic
process of the variable of interest (the 1-month spot rate) and a related market variable (the 1-month forward
rate …, let y
t+1
and ˆy
t+1,t+2
be the 1-period spot and forward rate, respectively. Setting p =1,a
12S
t+1
=0,
and assuming no … regime shifts and allows for a
two-factor specification in which the short rate is also affected by shocks to the forward rate …