The Macroeconomy and the Yield Curve: A Nonstructural Analysis
39 Pages Posted: 28 Oct 2003
Date Written: October 21, 2003
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: Suggested Citation