This paper examines whether empirical and theoretical results suggesting a relatively small role for counterparty credit risk in the determination of interest rate swap rates hold during periods of stress in the financial markets, such as the chain of events that followed the Russian default...

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...

We derive a definition of linear cointegration for nonlinear stochastic processes using a martingale representation theorem. The result shows that stationary linear cointegrations can exhibit nonlinear dynamics, in contrast with the normal assumption of linearity. We propose a sequential...

From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25 percentage points, yet long-maturity yields and forward rates fell. We consider several possible explanations for this "conundrum." The most likely, in our view, is a fall in the term premium, probably associated with some...

This paper reviews a simple three-factor arbitrage-free term structure model estimated by Federal Reserve Board staff and reports results obtained from fitting this model to U.S. Treasury yields since 1990. The model ascribes a large portion of the decline in long-term yields and distant-horizon...

We examine various dynamic term structure models for monthly US Treasury yields from 1964 to 2001. Of particular interest is the predictability of bond excess returns. Recent evidence indicates that using multiple forward rates can sharply predict future excess returns on bonds; the R2 of this...