The Macroeconomy and the Yield Curve: A Nonstructural Analysis

Francis Diebold (), Glenn Rudebusch () and S. Boragan Aruoba ()

No 2003/31, CFS Working Paper Series from Center for Financial Studies

Abstract: We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve. We find strong evidence of the effects of macro variables on future movements in the yield curve and much weaker evidence for a reverse influence. We also relate our results to a traditional macroeconomic approach based on the expectations hypothesis.

Keywords: Yield curve; term structure; interest rates; macroeconomic fundamentals; factor model; state-space model (search for similar items in EconPapers)
JEL-codes: G1 E4 C5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-rmg
Date: 2003-01-31
Note: This paper may be freely reproduced for educational and research purposes, so long as it is not altered, this copyright notice is reproduced with it, and it is not sold for profit. Acknowledgments: We thank the Guggenheim Foundation, the National Science Foundation, and the Wharton Financial Institutions Center for research support. For helpful discussions and comments, we thank Andrew Ang, Pierluigi Balduzzi, Todd Clark, Ron Gallant, Ken Nyholm, Monika Piazzesi, Mike Wickens, and Scott Weiner. The views expressed in this paper do not necessarily reflect those of the Federal Reserve Bank of San Francisco.
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Related works:
Working Paper: The Macroeconomy and the Yield Curve: A Nonstructural Analysis (2003)
Working Paper: The macroeconomy and the yield curve: a nonstructural analysis (2003)
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