We suggest using "realized volatility" as a volatility proxy to aid in model-based multivariate bond yield density … forecasting. To do so, we develop a general estimation approach to incorporate volatility proxy information into dynamic factor … models with stochastic volatility. The resulting model parameter estimates are highly efficient, which one hopes would …

We document strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982 … policy and shocks with time-varying volatility. The decline is consistent with changes in both policy and shock dynamics …. While an increase in the response to inflation in the interest-rate policy rule decreases volatility, more persistent and …