eassy

Following Leippold and Matthys (2015) one can model the linkage between economic policy uncertainty and bond yield variance, as well as the determinants that form its hump-shape pattern, by estimating the following equation:

(1)

Where is the time series of the realized volatility of bonds across different maturities, which is derived from the following formula:

(2)

Where D stands for the number of daily observations with ranging from 1 to about 20 business days each month. represents bond maturities, taking values from 1 to 30 years.

Reference

Leippold, M. and F. H. Matthys (2015). Economic policy uncertainty and the yield curve, unpublished, Swiss Finance Institute.