Further Evidence on the Impact of Economic News on Interest Rates
45 Pages Posted: 10 Jun 2010 Last revised: 29 Feb 2012
Date Written: October 1, 2009
We investigate the shape of the term structure reaction of the US swap rates to announcements using several linear and non-linear time series models. We document the non-linearity of the market reaction to macroeconomic news. First, we find that the introduction of non linear models leads to the finding of a significant number of macroeconomic figures that actually produce an effect over the yield curve. Second, we noticed at least four types of patterns in the term structure reaction of interest rates across maturities, including the hump-shaped one that is generally considered. Third, we propose a first interpretation and classification of these different shapes. Fourth we find that the existence of outliers in interest rates leads to an underestimation of the reaction of interest rates to announcements, explaining the different results obtained between high-frequency and daily datasets.
Keywords: Macroeconomic Announcements, Interest Rates Dynamic, Outliers, Reaction Function, Principal Component Analysis
JEL Classification: G14
Suggested Citation: Suggested Citation