A Structural Decomposition of the US Yield Curve

Graeve, Ferre De; Emiris, Marina; Wouters, Raf

doi:10.2139/ssrn.1303585

Cited by 15 publications

(12 citation statements)

References 47 publications

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“…To address this issue, we add Fischer's (2005) relative price deflator series for investment and equipment goods to our VAR and rerun both the slope shock identification and the TFP news shock identification. 18 In response to the slope shock, both relative price deflators increase slightly on impact and then decrease significantly after about 10 quarters to a permanently lower level. In response to the TFP news shock, by contrast, neither of the relative price deflators reacts significantly.…”

Section: Robustnessmentioning

confidence: 99%

News Shocks and the Slope of the Term Structure of Interest Rates

Kurmann

Otrok

2013

American Economic Review

139

119

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Abstract:We provide a new structural interpretation of the relationship between the slope of the term structure of interest rates and macroeconomic fundamentals. We first adopt an agnostic identification approach that allows us to identify the shocks that explain most of the movements in the slope. We find that two shocks are sufficient to explain virtually all movements in the slope. Impulse response functions for the first shock, which explains the majority of the movements in the slope, lead us to interpret this main shock as a news shock about future productivity. We confirm this interpretation by formally identifying such a news shock as in Barsky andSims (2009) andSims (2009). We then assess to what extent a New Keynesian DSGE model is capable of generating the observed slope responses to a news shock. We find that augmenting DSGE models with a term structure provides valuable information to discipline the description of monetary policy and the model's response to news shocks in general.

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Section: Robustnessmentioning

confidence: 99%

News Shocks and the Slope of the Term Structure of Interest Rates

Kurmann

Otrok

2013

American Economic Review

139

119

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“…Focusing on the two stochastic trends, we observe that both variables are characterized by a substantial and smooth time variation. In line with Bekaert et al (2006), and Graeve et al (2009), the long-run in ‡ation expectations factor, t ; exhibits long swings. In contrast to Bekaert et al (2006), and Graeve et al (2009), however, we observe a much smoother time series of long-run in ‡ation expectations.…”

Section: Factorsmentioning

confidence: 80%

“…In line with Bekaert et al (2006), and Graeve et al (2009), the long-run in ‡ation expectations factor, t ; exhibits long swings. In contrast to Bekaert et al (2006), and Graeve et al (2009), however, we observe a much smoother time series of long-run in ‡ation expectations. We do not observe the excess volatility of in ‡ation expectations, typical for many benchmark models.…”

Section: Factorsmentioning

confidence: 80%

“…Examples of this MF approach includes among others, Ang and Piazzesi (2003), Bekaert et al (2006), , Graeve et al (2009), Hordahl et al (2006) and Rudebusch and Wu (2008) Although the overall success of MF models is recognized, some issues remain. From a theoretical perspective, this class of models is restrictive in the selection of the factors impacting on the yield curve.…”

Section: Introductionmentioning

confidence: 99%

“…3 The EMF thus provides a comprehensive framework complementing and connecting to the recent …nancial (swap) yield curve models. 4 Following Ang et al (2007), Chib and Ergashev (2008), Graeve et al (2009), Dewachter (2008) and Doh (2006), we use Bayesian methods to estimate and evaluate the extended MF model on US data.…”

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confidence: 99%

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An Extended Macro-Finance Model with Financial Factors

Dewachter¹,

Iania²

2011

J. Financ. Quant. Anal.

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This paper extends the benchmark Macro-Finance model by introducing, next to the standard macroeconomic factors, additional liquidity-related and return forecasting factors. Liquidity factors are obtained from a decomposition of the TED spread while the return forecasting (risk premium) factor is extracted by imposing a single factor structure on the one-period expected excess holding returns. The model is estimated on US data using MCMC techniques. Two …ndings stand out. First, the model outperforms signi…cantly most structural and non-structural Macro-Finance yield curve models in terms of cross-sectional …t of the yield curve. Second, we …nd that …nancial shocks, either in the form of liquidity or risk premium shocks have a statistically and economically signi…cant impact on the yield curve. The impact of …nancial shocks extends throughout the yield curve and is most pronounced at the high-and intermediate frequencies.CES, Naamsestraat 69, B-3000 Leuven, Belgium; Hans.Dewachter@econ.kuleuven.be. Financial support of the Flemish Science Foundation (FWO) is gratefully acknowledged.

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The yield curve and the macro-economy across time and frequencies

Aguiar‐Conraria

Martins

Soares

2012

Journal of Economic Dynamics and Control

109

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a b s t r a c tWe assess the relation between the yield curve and the macroeconomy in the U.S. between 1961 and 2011. We add to the standard parametric macro-finance models, as we uncover evidence simultaneously on the time and frequency domains. We model the shape of the yield curve by latent factors corresponding to its level, slope and curvature. The macroeconomic variables measure real activity, inflation and monetary policy. The tools of wavelet analysis, the set of variables and the length of the sample allow for a thorough appraisal of the time-variation in the direction, intensity, synchronization and periodicity of the yield curve-macroeconomy relation.

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A Structural Decomposition of the US Yield Curve

Cited by 15 publications

References 47 publications

News Shocks and the Slope of the Term Structure of Interest Rates

News Shocks and the Slope of the Term Structure of Interest Rates

An Extended Macro-Finance Model with Financial Factors

The yield curve and the macro-economy across time and frequencies

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