low volatility periods only and in the presence of an inverted yield curve. Second, through an impulse response analysis …

The paper investigates the effect of interest rate variance on the shape of the yield curve using a bivariate 2-state … Markov switching model for the short rate changes and the yield curve slope. The two states are characterized by the variance … of the short rate changes: Low and high variance. In the high variance regime the yield curve becomes steeper with the …