As far as equity volatility is concerned, while the single-state volatility has in practice a lower bound at around 3.4% per month, this is not the case for the three-state model. Otherwise, the two forecasts appear to be correlated (0.65), with a much higher standard deviation for the MS forecasts (1.4% vs. 1%). In the case of bond volatility, the main difference lies in the heterogeneous level of the forecast series in the periods 1953–70 and 1989–2007, when single-state forecasts are considerably lower (although they still strong comove, the overall correlation is 0.69), ...
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