The Term Structure of Interest Rates and Macro Economy: Evidence from the Pre- and Post- Crisis Periods

Posted: 6 Jun 2015

See all articles by Evangelos Salachas

Evangelos Salachas

Athens University of Economics and Business

Nikiforos T. Laopodis

Fairfield University - School of Business - Department of Finance; Deree

Georgios P. Kouretas

Athens University of Economics and Business; IPAG Business School

Date Written: February 15, 2015

Abstract

In this paper we extract the factors that shape the yield curve and we relate them with macroeconomy. We examine whether the term structure can predict future economic activity by applying a range of econometric approaches both in pre- and post- crisis periods. Furthermore, we assess the strength of the yield curve forecasting power on economic activity for Eurozone. In addition, we analyze the effect of increased market risk in the term structure and economic activity whereas we evaluate the impact of monetary policy in the term structure. We find that the forecasting performance of term structure deteriorates in the post-crisis period and that credit spreads forecast better Eurozone industrial production. Also, as we find, one significant explanation for the change in predictability during pre- and post- crisis periods is due to the effect of market risk on the term structure during the post-crisis period. Finally, we argue that monetary policy determines significantly the term structure either by conventional or unconventional measures.

Keywords: Term structure, VAR, Principal component analysis, Markov switching regressions, Financial crisis, Monetary policy, Economic activity, Market volatility

JEL Classification: E27, E52, E58, E42, E44

Suggested Citation

Salachas, Evangelos and Laopodis, Nikiforos T. and Kouretas, Georgios P., The Term Structure of Interest Rates and Macro Economy: Evidence from the Pre- and Post- Crisis Periods (February 15, 2015). Available at SSRN: https://ssrn.com/abstract=2614441 or http://dx.doi.org/10.2139/ssrn.2614441

Evangelos Salachas (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Nikiforos T. Laopodis

Fairfield University - School of Business - Department of Finance ( email )

North Benson Rd.
Fairfield, CT 06824
United States
203-254-4000, ext. 3273 (Phone)
203-254-4105 (Fax)

HOME PAGE: http://www.faculty.fairfield.edu/nlaopodis

Deree ( email )

Gravias 6, Aghia Paraskevi
Athens, 153-42
Greece

Georgios P. Kouretas

Athens University of Economics and Business ( email )

Department of Business Administration
Athens, GR-10434
Greece

HOME PAGE: http://www.aueb.gr/Users/kouretas/index_en.html

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

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