Are long‐term bond yields excessively volatile?

There is a debate on the excess volatility of long‐term bond yields. It is found that whether long‐term bond yields are excessively volatile or excessively smooth depends critically on the knowledge of the long‐run properties of the short‐term interest rate process. Uses a span of 200 years of data on interest rates and finds that the short rates from the USA and the UK are characterized by stationarity after the tests for unit root have accounted for structural breaks. Volatility tests reveal for the whole and sub‐sample periods that the long rates are excessively smooth.