Unspanned Macroeconomic Factors in the Yield Curve

49 Pages Posted: 23 Aug 2014

See all articles by Laura Coroneo

Laura Coroneo

University of York - Department of Economics and Related Studies

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Michele Modugno

Board of Governors of the Federal Reserve System

Date Written: July 30, 2014

Abstract

In this paper, we extract common factors from a cross-section of U.S. macro-variables and Treasury zero-coupon yields. We find that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.

Keywords: Yield curve, government bonds, factor models, forecasting

JEL Classification: C33, C53, E43, E44, G12

Suggested Citation

Coroneo, Laura and Giannone, Domenico and Modugno, Michele, Unspanned Macroeconomic Factors in the Yield Curve (July 30, 2014). FEDS Working Paper No. 2014-57. Available at SSRN: https://ssrn.com/abstract=2480081 or http://dx.doi.org/10.2139/ssrn.2480081

Laura Coroneo

University of York - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

Domenico Giannone

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Modugno (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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