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Macroeconomic releases and the interest rate term structure

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  • Lu, Biao
  • Wu, Liuren

Abstract

We extract two systematic economic factors from a wide array of noisy and sparsely observed macroeconomic releases, and link the dynamics and market prices of the two factors to the interest rate term structure. The two factors predict 77.9-82.1% of the daily variation in LIBOR and swap rates from one month to 10 years. Shocks on inflation-related releases have large, positive impacts on interest rates of all maturities, leading to parallel shifts of the yield curve, but shocks on output-related releases have larger impacts on the short rate than on the long rate, thus generating a slope effect.

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Bibliographic Info

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

Volume (Year): 56 (2009)
Issue (Month): 6 (September)
Pages: 872-884

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Handle: RePEc:eee:moneco:v:56:y:2009:i:6:p:872-884

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

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Keywords: Macroeconomic releases Interest rate term structure Optimal monetary policy Dynamic factors Market prices of economic risks Inflation Real output growth Kalman filter;

References

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Cited by:
  1. 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.

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