The Macroeconomy and the Yield Curve: A Nonstructural Analysis

40 Pages Posted: 14 Dec 2003

See all articles by Glenn D. Rudebusch

Glenn D. Rudebusch

Federal Reserve Bank of San Francisco

Francis X. Diebold

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

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, state-space model

JEL Classification: G1, E4, C5

Suggested Citation

Rudebusch, Glenn D. and Diebold, Francis X. and Aruoba, S. Boragan, The Macroeconomy and the Yield Curve: A Nonstructural Analysis (October 21, 2003). Available at SSRN: https://ssrn.com/abstract=473141 or http://dx.doi.org/10.2139/ssrn.473141

Glenn D. Rudebusch (Contact Author)

Federal Reserve Bank of San Francisco ( email )

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San Francisco, CA 94105
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Francis X. Diebold

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

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S. Boragan Aruoba

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3508 (Phone)
301-405-3542 (Fax)

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