Macroeconomic Models and the Yield Curve

Jagjit Chadha and Sean Holly
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Sean Holly: Cambridge University

No 105, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: Many have questioned the empirical relevance of the Calvo-Yun model. This paper appends three widely-studied macroeconomic models (Calvo-Yun, Hybrid and Svensson) with forward rate curves. We back out from observations on the yield curve the underlying macroeconomic model that most closely matches the level, slope and curvature of the yield curve. With each model we trace the response of the yield curve to macroeconomic shocks. We assess the fit of each model with the observed behaviour in forward rates. We find limited support for Calvo-Yun model in terms of fit with the observed yield curve but we find some support for each of the Hybrid and Svensson models. We conclude that macroeconomic persistence seems to be priced into the yield curve

Keywords: macroeconomic models; yield curve (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:105

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