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The high-frequency impact of news on long-term yields and forward rates: Is it real?

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  • Beechey, Meredith J.
  • Wright, Jonathan H.

Abstract

Macroeconomic news announcements move yields and forward rates on nominal and index-linked bonds and inflation compensation. This paper estimates the reactions using high-frequency data on nominal and index-linked bond yields, allowing the effects of news announcements on real rates and inflation compensation to be parsed far more precisely than is possible using daily data. Long-term nominal yields and forward rates are very sensitive to macroeconomic news announcements. Inflation compensation is sensitive to announcements about price indices and monetary policy. However, for news announcements about real economic activity, such as nonfarm payrolls, the vast majority of the sensitivity is concentrated in real rates. Accordingly, most of the sizeable impact of news about real economic activity on the nominal term structure of interest rates represents changes in expected future real short-term interest rates and/or real risk premia rather than changes in expected future inflation and/or inflation risk premia. Such sensitivity of real rates to macroeconomics news is hard to rationalize within the framework of existing macroeconomic models.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 4 (May)
Pages: 535-544

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Handle: RePEc:eee:moneco:v:56:y:2009:i:4:p:535-544

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Intradaily data News announcements Inflation compensation Real interest rates;

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References

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Citations

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Cited by:
  1. Emi Nakamura & Jón Steinsson, 2013. "High Frequency Identification of Monetary Non-Neutrality," NBER Working Papers 19260, National Bureau of Economic Research, Inc.
  2. James D. Hamilton & Jing Cynthia Wu, 2012. "Identification and Estimation of Gaussian Affine Term Structure Models," NBER Working Papers 17772, National Bureau of Economic Research, Inc.
  3. Patrick D'Arcy & Emily Poole, 2010. "Interpreting Market Responses to Economic Data," RBA Bulletin, Reserve Bank of Australia, pages 35-42, September.
  4. Till Strohsal & Lars Winkelmann, 2012. "Assessing the Anchoring of Inflation Expectations," SFB 649 Discussion Papers SFB649DP2012-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  5. Mehmet Pasaogullari & Simeon Tsonevy, 2011. "The term structure of inflation compensation in the nominal yield curve," Working Paper 1133, Federal Reserve Bank of Cleveland.
  6. John Campbell & Robert Shiller & Luis Viceira, 2009. "Understanding Inflation-Indexed Bond Markets," Yale School of Management Working Papers amz2587, Yale School of Management.
  7. Lars winkelmann & Markus Bibinger & Tobias Linzert, 2013. "ECB monetary policy surprises: identification through cojumps in interest rates," SFB 649 Discussion Papers SFB649DP2013-038, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Carlo Rosa, 2013. "The high-frequency response of energy prices to monetary policy: understanding the empirical evidence," Staff Reports 598, Federal Reserve Bank of New York.
  9. Hamilton, James D. & Wu, Jing Cynthia, 2014. "Testable implications of affine term structure models," Journal of Econometrics, Elsevier, vol. 178(P2), pages 231-242.
  10. Tobias Adrian & Hao Wu, 2009. "The term structure of inflation expectations," Staff Reports 362, Federal Reserve Bank of New York.
  11. Ciccarelli, Matteo & García, Juan Angel, 2009. "What drives euro area break-even inflation rates?," Working Paper Series 0996, European Central Bank.
  12. Carlo Rosa, 2012. "How "unconventional" are large-scale asset purchases? The impact of monetary policy on asset prices," Staff Reports 560, Federal Reserve Bank of New York.
  13. Bauer, Michael D., 2014. "Inflation expectations and the news," Working Paper Series 2014-9, Federal Reserve Bank of San Francisco.
  14. Michael J. Fleming & Neel Krishnan, 2012. "The microstructure of the TIPS market," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 27-45.
  15. Liebermann, Joelle, 2011. "The Impact of Macroeconomic News on Bond Yields: (In)Stabilities over Time and Relative Importance," Research Technical Papers 7/RT/11, Central Bank of Ireland.
  16. Pitschner, Stefan, 2013. "Using Financial Markets To Estimate the Macro Effects of Monetary Policy:," Working Paper Series 267, Sveriges Riksbank (Central Bank of Sweden).
  17. Michelle L. Barnes & N. Aaron Pancost, 2010. "The sensitivity of long-term interest rates to economic news: comment," Working Papers 10-7, Federal Reserve Bank of Boston.
  18. Moretti, Laura, 2014. "Monetary policy, long real yields and the financial crisis," CFS Working Paper Series 457, Center for Financial Studies (CFS).

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