The Macroeconomy and the Yield Curve: A Nonstructural Analysis

39 Pages Posted: 28 Oct 2003

See all articles by Francis X. Diebold

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Glenn D. Rudebusch

Federal Reserve Bank of San Francisco

S. Borağan Aruoba

University of Maryland - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 21, 2003

Abstract

We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve. We find strong evidence of the effects of macro variables on future movements in the yield curve and much weaker evidence for a reverse influence. We also relate our results to a traditional macroeconomic approach based on the expectations hypothesis.

Keywords: Yield curve, term structure, interest rates, macroeconomic fundamentals, factor model, statespace model

JEL Classification: G1, E4, C5

Suggested Citation

Diebold, Francis X. and Rudebusch, Glenn D. and Aruoba, S. Boragan, The Macroeconomy and the Yield Curve: A Nonstructural Analysis (October 21, 2003). Available at SSRN: https://ssrn.com/abstract=462060 or http://dx.doi.org/10.2139/ssrn.462060

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

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Glenn D. Rudebusch

Federal Reserve Bank of San Francisco ( email )

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S. Boragan Aruoba

University of Maryland - Department of Economics ( email )

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