Economic Determinants of the Nominal Treasury Yield Curve

44 Pages Posted: 27 Dec 2001

See all articles by Charles L. Evans

Charles L. Evans

Federal Reserve Bank of Chicago - Research Department

David A. Marshall

Federal Reserve Bank of Chicago; University of Chicago - Booth School of Business

Date Written: December 2001

Abstract

We study the effect of different types of macroeconomic impulses on the nominal yield curve. We employ two distinct approaches to identifying economic shocks in VARs. Our first approach uses a structural VAR due to Gali (1992). Our second strategy identifies fundamental impulses from alternative empirical measures of economic shocks proposed in the literature. We find that most of the long-run variability of interest rates of all maturities is driven by macroeconomic impulses. Shocks to preferences for current consumption consistently induce large, persistent, and statistically significant shifts in the level of the yield curve. In contrast, technology shocks induce weaker and less robust patterns of interest rate responses, since they move real rates and expected inflation in opposite directions. Monetary policy shocks are the only macroeconomic shocks with a consistent and significant impact on the slope of the yield curve. We find no evidence that fiscal policy shocks induce any significant interest rate responses.

Suggested Citation

Evans, Charles L. and Marshall, David Aaron, Economic Determinants of the Nominal Treasury Yield Curve (December 2001). FRB of Chicago Working Paper No. 2001-16. Available at SSRN: https://ssrn.com/abstract=294942 or http://dx.doi.org/10.2139/ssrn.294942

Charles L. Evans (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
P.O. Box 834
Chicago, IL 60604-1413
United States
312-322-5812 (Phone)
312-322-2357 (Fax)

David Aaron Marshall

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
312-322-5111 (Phone)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
523
Abstract Views
2,531
rank
51,996
PlumX Metrics