Intelligible factors for the yield curve

Yvan Lengwiler and Carlos Lenz

Journal of Econometrics, 2010, vol. 157, issue 2, 481-491

Abstract: We construct a factor model of the yield curve and specify time series processes for these factors, so that the innovations are mutually orthogonal. At the same time, the factors are such that they assume clear, intuitive interpretations. The resulting "intelligible factors" should prove useful for investment professionals to discuss expectations about yield curves and the implied dynamics. Moreover, they allow us to distinguish announced changes of the monetary policy stance versus monetary policy surprises, which we find to be rare. We identify two such events, namely September 11, 2001, and the Fed reaction to the sub-prime crisis of 2007.

Keywords: Term; structure; of; interest; rates; Dynamic; factor; model; Vector; autoregression; Monetary; policy; shocks (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Working Paper: Intelligible Factors for the Yield Curve (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:157:y:2010:i:2:p:481-491

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