Stock Market Cycle and the Term Structure of Interest Rate of Treasury Bond in China: An Empirical Analysis Based on MS-VAR Model

This paper makes the estimation for three parameters(level factor,slope factor,curvature factor) series in Nelson-Siegel model,using the data coming from Treasury bond market in China during 5 years from 2003 to 2008.Supposing the evolvement of the vector of time series of three parameters is governed by some latent variable,which ruled by 2-regime Markov chain,we complete the specification for Markov-Switching VAR model,which reflects the influence of the term structure of interest rate of Treasury bond resulting from the switching of the latent variable.The empirical result shows that the latent variable is the stock market cycle and the evolvement of the term structure of interest rate of Treasury bond is governed by the switching on the stock market cycle.