Bond Markets and Macroeconomic Performance

Guglielmo Maria Caporale and Geoffrey Williams

Zagreb International Review of Economics and Business, 2001, vol. 4, issue 1, 27-44

Abstract: This paper presents some empirical evidence on the relationship between the yield curve and macroeconomic variables in the G7. The econometric methodology followed takes into account stationarity, cointegration and exogeneity features of the data, which is typically not done in the existing literature, resulting in invalid statistical inference. The Phillips-Hansen fully modified estimator delivers well specified equations, which confirm the importance of fiscal and monetary developments in the determination of both long- and short-term interest rates. The results are consistent with an IS-LM/loanable funds framework, and have implications for the likelihood of alternative EMU scenarios under different policy assumptions.

Keywords: Causality; Cointegration; Exogeneity; Phillips-Hansen Fully Modified Estimator; Yield Curve (search for similar items in EconPapers)
JEL-codes: C32 E44 E62 (search for similar items in EconPapers)
Date: 2001
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