The Canadian macroeconomy and the yield curve: A dynamic latent factor approach

Ronald H. Lange

International Review of Economics & Finance, 2013, vol. 27, issue C, 261-274

Abstract: This study estimates a dynamic latent factor model of the yield curve for Canada using a newly constructed data series on the term structure of constant-maturity, zero-coupon interest rates. The state-space representation of the model is used to assess the dynamic interaction between three latent yield-curve factors (level, slope, and curvature) and key macroeconomic variables (real activity, inflation, and the monetary policy instrument). The estimates support both strong macroeconomic effects on the future yield curve and yield-curve effects on future macroeconomic developments. The bidirectional causality is much stronger than that found in the research for the United States.

Keywords: Yield curve; Interest rates; Factor model; State-space model (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:27:y:2013:i:c:p:261-274

DOI: 10.1016/j.iref.2012.10.003

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