The impact of macroeconomic news sentiment on interest rates

Francesco Audrino and Eric A. Offner

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: We provide evidence that sentiment extracted from articles related to interest rates, inflation, and the labor market has the ability to explain short-term interest rate movements that cannot be accounted for by professionals’ and consumers’ expectations. Additionally, sentiment can pin down two short rate regimes that are correlated with the business cycle. By combining these results with a yield curve model, we find that market sentiment has a statistically significant negative effect on the short end of the yield curve and a positive effect on the slope. We also show that sentiment improves the out-of-sample forecast accuracy of short-term yields.

Keywords: Yield Curve; News sentiment; Macroeconomic variables; Regime-Switching Models (search for similar items in EconPapers)
JEL-codes: E43 G41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924002254

DOI: 10.1016/j.irfa.2024.103293

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