Macro Factors and the Term Structure of Interest Rates

Dewachter, Hans; Lyrio, Marco

doi:10.1353/mcb.2006.0014

Cited by 232 publications

(81 citation statements)

References 38 publications

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“…Hordahl et al (2006) -to the role of inflation expectations in modeling long-term bond yields -e.g. Dewachter and Lyrio (2006) -and to the analysis of the monetary policy regime and the macroeconomic structure -e.g. Rudebusch and Wu (2008).…”

Section: The Yield Curve Latent Components and The Main Macroeconomicmentioning

confidence: 99%

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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Section: The Yield Curve Latent Components and The Main Macroeconomicmentioning

confidence: 99%

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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“…5), the output gap, the long-term interest rate and the funds rate increase immediately. Inflation increases Fluctuations in the long-rate natural rate are related to the level factor in Kozicki andTinsley (2001b), DeWachter andLyrio (2002), Ho¨rdahl et al (2002) and Rudebusch and Wu (2003). substantially in the constant model, but remains under control in the time-varying model. The muted response of inflation in the time-varying model may reflect that with lags in inflation, policy can effectively cut off the adverse consequences of an aggregate demand shock before inflation responds.…”

Section: Model Dynamicsmentioning

confidence: 99%

Permanent and transitory policy shocks in an empirical macro model with asymmetric information

Kozicki

Tinsley

2005

Journal of Economic Dynamics and Control

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An empirical model that allows for shifts in the inflation target and imperfect policy credibility is estimated. Imperfect credibility, defined by differences between the perceived and actual inflation target, obtains because private agents cannot correctly distinguish between permanent target shocks and transitory funds rate shocks. Learning affects responses to structural shocks. Important features include the absence of a price puzzle, permanent nominal effects of aggregate supply shocks due to partial policy accommodation, and the ability to examine responses to a permanent target change and expectations shocks. ARTICLE IN PRESSwww.elsevier.com/locate/jedc 0165-1889/$ -see front matter r Perceptions of permanent target shocks explain sizable movements in bond yields and inflation. r

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“…Inspired by this finding, a vivid literature has emerged lately that explores different approaches to jointly model the term structure and the macroeconomy. Examples for such models are Hördahl et al (2006), and Dewachter and Lyrio (2006). While these latter studies consistently find that macroeconomic variables are useful for explaining and/or forecasting government bond yields, they only exploit very small macroeconomic information sets.…”

Section: Introductionmentioning

confidence: 99%