U.S. Macroeconomic News and Low-Frequency Changes in Small Open Economies’ Bond Yields

Bingxin Xing, Bruno Feunou, Morvan Nongni-Donfack and Rodrigo Sekkel

Staff Working Papers from Bank of Canada

Abstract: This paper investigates the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden and the United Kingdom. We follow two complementary approaches: First, we apply a regression-based framework that aggregates the impact of daily macroeconomic news on bond yields to a lower quarterly frequency. Next, we estimate a macro-finance affine term structure model linking the daily news to lower-frequency changes in bond yields and their expectations and term premia. Both approaches show that U.S. macroeconomic news is an important source of lower-frequency quarterly fluctuations in bond yields in these small open economies—even more important than the respective countries’ domestic macroeconomic news. Furthermore, the macro-finance model shows that U.S. macroeconomic news is particularly important to explain low-frequency changes in the expectation components of the nominal, real and break-even inflation rates.

Keywords: Central bank research; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 G14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-fmk, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:24-12

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