The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach

Francis Diebold, Glenn Rudebusch and S. Boragan Aruoba

No 10616, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a model that summarizes the yield curve using latent factors (specifically, level, slope, and curvature) and also includes observable macroeconomic variables (specifically, real activity, inflation, and the monetary policy instrument). Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve. We find strong evidence of the effects of macro variables on future movements in the yield curve and evidence for a reverse influence as well. We also relate our results to the expectations hypothesis.

JEL-codes: E4 G1 (search for similar items in EconPapers)
Date: 2004-07
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Published as Diebold, Francis S., Glenn D. Rudebusch and S. Borag'an Aruoba. "The Macroeconomy And The Yield Curve: A Dynamic Latent Factor Approach," Journal of Econometrics, 2006, v131(1-2,Mar-Apr), 309-338.

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Journal Article: The macroeconomy and the yield curve: a dynamic latent factor approach (2006)
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