Macroeconomic releases and the interest rate term structure

Biao Lu and Liuren Wu

Journal of Monetary Economics, 2009, vol. 56, issue 6, 872-884

Abstract: We extract two systematic economic factors from a wide array of noisy and sparsely observed macroeconomic releases, and link the dynamics and market prices of the two factors to the interest rate term structure. The two factors predict 77.9-82.1% of the daily variation in LIBOR and swap rates from one month to 10 years. Shocks on inflation-related releases have large, positive impacts on interest rates of all maturities, leading to parallel shifts of the yield curve, but shocks on output-related releases have larger impacts on the short rate than on the long rate, thus generating a slope effect.

Keywords: Macroeconomic; releases; Interest; rate; term; structure; Optimal; monetary; policy; Dynamic; factors; Market; prices; of; economic; risks; Inflation; Real; output; growth; Kalman; filter (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:6:p:872-884

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