A Macroeconomic Analysis of the Latent Factors of the Yield Curve: Curvature and Real Activity

Matteo Modena

Chapter 7 in Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, 2011, pp 121-146 from Palgrave Macmillan

Abstract: Abstract Examining the relation between yields at different maturities is crucial for both macroeconomists and financial economists. From a macro-economic perspective, the short rate is the policy instrument under the control of the monetary authority; however, from a financial perspective, movements in short-term rates are analyzed to forecast longer yields’ dynamics, since yields on long-term bonds are the expected average of risk-adjusted future spot rates. Moreover, the dynamics of the term structure (TS) is influenced both by monetary policy actions and by expectations about policy announcements; while, on the other hand, economists infer the future path of macro variables from different shapes of the yield curve.

Keywords: Monetary Policy; Term Structure; Yield Curve; Consumption Growth; Cyclical Component (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-29520-9_7

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DOI: 10.1057/9780230295209_7

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