No-arbitrage macro-finance models use variance decompositions to gauge the extent of association between the macro variables and yields. We show that results generated by this approach are sensitive to the order of variables in the recursive identification scheme. In a four-factor model, one may...

Several authors have proposed to combine movements in princi- pal components to generate scenarios of "large" historical changes in term structures, i.e. stress-scenarios. This approach, however, has at least two shortcommings. This paper answers at these two problems and proposes a general...

No-arbitrage macro-finance models use variance decompositions to gauge the extent of association between the macro variables and yields. We show that results generated by this approach are sensitive to the order of variables in the recursive identification scheme. In a four-factor model, one may...