Information in the Yield Curve: A Macro-Finance Approach

61 Pages Posted: 24 Mar 2013

See all articles by Hans Dewachter

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM)

Leonardo Iania

Université catholique de Louvain

Marco Lyrio

Insper Institute of Education and Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 23, 2013

Abstract

We use a macro-…finance model incorporating macroeconomic and …financial factors to study the term premium in the U.S. bond market. Estimating the model using Bayesian techniques, we …find that one factor is responsible for most of the variation in bond premia. Furthermore, the model-implied bond premia explain up to 40% of the variability of one- and two-year excess returns. Using the model to decompose yield spreads into an expectations and a term premium component, we find that, although this decomposition does not seem important to forecast economic activity, it is crucial to forecast inflation for most forecasting horizons.

Keywords: Macro-fi…nance model, Term structure, Forecasting

JEL Classification: E43, E44, E47

Suggested Citation

Dewachter, Hans and Iania, Leonardo and Lyrio, Marco, Information in the Yield Curve: A Macro-Finance Approach (March 23, 2013). Available at SSRN: https://ssrn.com/abstract=2238367 or http://dx.doi.org/10.2139/ssrn.2238367

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics ( email )

Center for Economic Studies
Naamsestraat 69
Leuven, B-3000
Belgium
+0032 16 326859 (Phone)
+0032 16 326796 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Leonardo Iania (Contact Author)

Université catholique de Louvain ( email )

34, Voie du roman pays
louvain la neuve, 1348
Belgium

HOME PAGE: http://https://sites.google.com/site/ianialeonardo/

Marco Lyrio

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

HOME PAGE: http://www.insper.edu.br/en/faculty-and-research/marco-lyrio

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