Economic determinants of the nominal treasury yield curve

Charles Evans and David Marshall

No WP-01-16, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: We study the effect of different types of macroeconomic impulses on the nominal yield curve. We employ two distinct approaches to identifying economic shocks in VARs. Our first approach uses a structural VAR due to Gal (1992). Our second strategy identifies fundamental impulses from alternative empirical measures of economic shocks proposed in the literature. We find that most of the long-run variability of interest rates of all maturities is driven by macroeconomic impulses. Shocks to preferences for current consumption consistently induce large, persistent, and statistically significant shifts in the level of the yield curve. In contrast, technology shocks induce weaker and less robust patterns of interest rate responses, since they move real rates and expected inflation in opposite directions. Monetary policy shocks are the only macroeconomic shocks with a consistent and significant impact on the slope of the yield curve. We find no evidence that fiscal policy shocks induce any significant interest rate responses.

Keywords: Macroeconomics; Monetary policy; Fiscal policy (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-pke
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Citations: View citations in EconPapers (35)

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Journal Article: Economic determinants of the nominal treasury yield curve (2007)
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