This paper characterizes time variation in the link between macroeconomic risk and variation in the yield curve. Based on a term structure model with time-varying variance decomposition, I show that the macroeconomic share of the variation in short-term yields has increased since the 1970s. A...

We introduce a Nelson-Siegel type interest rate term structure model with the underlying yield factors following autoregressive processes revealing time-varying stochastic volatility. The factor volatilities capture risk inherent to the term struc- ture and are associated with the time-varying...