Further Evidence on the Impact of Economic News on Interest Rates

45 Pages Posted: 10 Jun 2010 Last revised: 29 Feb 2012

See all articles by Dominique Guegan

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Date Written: October 1, 2009

Abstract

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

Guegan, Dominique and Ielpo, Florian, Further Evidence on the Impact of Economic News on Interest Rates (October 1, 2009). Frontiers in Finance and Economics, Vol. 6, No. 2, pp. 1-45, 2009. Available at SSRN: https://ssrn.com/abstract=1623263

Dominique Guegan (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

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