Intelligible factors for the yield curve
AbstractWe construct a factor model of the yield curve and specify time series processes for these factors, so that the innovations are mutually orthogonal. At the same time, the factors are such that they assume clear, intuitive interpretations. The resulting "intelligible factors" should prove useful for investment professionals to discuss expectations about yield curves and the implied dynamics. Moreover, they allow us to distinguish announced changes of the monetary policy stance versus monetary policy surprises, which we find to be rare. We identify two such events, namely September 11, 2001, and the Fed reaction to the sub-prime crisis of 2007.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 157 (2010)
Issue (Month): 2 (August)
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Web page: http://www.elsevier.com/locate/jeconom
Term structure of interest rates Dynamic factor model Vector autoregression Monetary policy shocks;
Other versions of this item:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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