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News Shocks and the Slope of the Term Structure of Interest Rates

André Kurmann and Christopher Otrok

Cahiers de recherche from CIRPEE

Abstract: We provide a new structural interpretation of the relationship between the slope of the term structure of interest rates and macroeconomic fundamentals. We first adopt an agnostic identification approach that allows us to identify the shocks that explain most of the movements in the slope. We find that two shocks are sufficient to explain virtually all movements in the slope. Impulse response functions for the first shock, which explains the majority of the movements in the slope, lead us to interpret this main shock as a news shock about future productivity. We confirm this interpretation by formally identifying such a news shock as in Barsky and Sims (2009) and Sims (2009). We then assess to what extent a New Keynesian DSGE model is capable of generating the observed slope responses to a news shock. We find that augmenting DSGE models with a term structure provides valuable information to discipline the description of monetary policy and the model’s response to news shocks in general.

Keywords: Term structure of interest rates; news; productivity shocks; business cycles; monetary policy (search for similar items in EconPapers)
JEL-codes: E30 E43 E52 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: News Shocks and the Slope of the Term Structure of Interest Rates (2013) Downloads
Working Paper: News shocks and the slope of the term structure of interest rates (2012) Downloads
Working Paper: News Shocks and the Slope of the Term Structure of Interest Rates (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1005

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