The Canadian macroeconomy and the yield curve: A dynamic latent factor approach
AbstractThis study estimates a dynamic latent factor model of the yield curve for Canada using a newly constructed data series on the term structure of constant-maturity, zero-coupon interest rates. The state-space representation of the model is used to assess the dynamic interaction between three latent yield-curve factors (level, slope, and curvature) and key macroeconomic variables (real activity, inflation, and the monetary policy instrument). The estimates support both strong macroeconomic effects on the future yield curve and yield-curve effects on future macroeconomic developments. The bidirectional causality is much stronger than that found in the research for the United States.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 27 (2013)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Yield curve; Interest rates; Factor model; State-space model;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- René Garcia & Richard Luger, 2007.
"The Canadian macroeconomy and the yield curve: an equilibrium-based approach,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 40(2), pages 561-583, May.
- René Garcia & Richard Luger, 2005. "The Canadian Macroeconomy and the Yield Curve: An Equilibrium-Based Approach," Working Papers 05-36, Bank of Canada.
- Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
- Armour, J. & Engert, W. & Fung, B.S.C., 1996. "Overnight Rate Innovations as a measure of monetary Policy Shocks in Vector Autoregressions," Working Papers 96-4, Bank of Canada.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991.
" The Term Structure as a Predictor of Real Economic Activity,"
Journal of Finance,
American Finance Association, vol. 46(2), pages 555-76, June.
- Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
- Diebold, Francis X. & Li, Canlin, 2003.
"Forecasting the term structure of government bond yields,"
CFS Working Paper Series
2004/09, Center for Financial Studies (CFS).
- Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
- Francis X. Diebold & Canlin Li, 2003. "Forecasting the Term Structure of Government Bond Yields," NBER Working Papers 10048, National Bureau of Economic Research, Inc.
- Francis X. Diebold & Canlin Li, 2002. "Forecasting the Term Structure of Government Bond Yields," Center for Financial Institutions Working Papers 02-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Arturo Estrella & Frederic S. Mishkin, 1995.
"Predicting U.S. Recessions: Financial Variables as Leading Indicators,"
NBER Working Papers
5379, National Bureau of Economic Research, Inc.
- Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
- Arturo Estrella & Frederic S. Mishkin, 1996. "Predicting U.S. recessions: financial variables as leading indicators," Research Paper 9609, Federal Reserve Bank of New York.
- Ben S. Bernanke & Alan S. Blinder, 1989.
"The federal funds rate and the channels of monetary transmission,"
89-10, Federal Reserve Bank of Philadelphia.
- Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
- Walid Hejazi & Huiwen Lai & Xian Yang, 2000. "The expectations hypothesis, term premia, and the Canadian term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 133-148, February.
- Fuhrer, Jeffrey C, 1996. "Monetary Policy Shifts and Long-Term Interest Rates," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1183-1209, November.
- Ronald Lange, 2008. "A decomposition of the predictive content of the term structure for output growth in Canada," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1537-1545.
- Christopher A. Sims & Tao Zha, 1999.
"Error Bands for Impulse Responses,"
Econometric Society, vol. 67(5), pages 1113-1156, September.
- Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
- Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers 1085, Cowles Foundation for Research in Economics, Yale University.
- Tom Doan, . "RATS programs to replicate Sims and Zha(1999) "Error Bands for Impulse Responses"," Statistical Software Components RTZ00145, Boston College Department of Economics.
- Venetis, Ioannis A. & Paya, Ivan & Peel, David A., 2003. "Re-examination of the predictability of economic activity using the yield spread: a nonlinear approach," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 187-206.
- Kostas Tsatsaronis & Frank Smets, 1997.
"Why does the yield curve predict economic activity? Dissecting the evidence for Germany and the United States,"
BIS Working Papers
49, Bank for International Settlements.
- Smets, Frank & Tsatsaronis, Kostas, 1997. "Why Does the Yield Curve Predict Economic Activity? Dissecting the Evidence for Germany and the United States," CEPR Discussion Papers 1758, C.E.P.R. Discussion Papers.
- Lars E.O. Svensson, 1994.
"Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994,"
NBER Working Papers
4871, National Bureau of Economic Research, Inc.
- Svensson, L.E.O., 1994. "Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994," Papers 579, Stockholm - International Economic Studies.
- David Jamieson Bolder & Scott Gusba, 2002. "Exponentials, Polynomials, and Fourier Series: More Yield Curve Modelling at the Bank of Canada," Working Papers 02-29, Bank of Canada.
- Lange, Ronald H., 2010. "Regime-switching monetary policy in Canada," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 782-796, September.
- Christis Hassapis, 2003. "Financial variables and real activity in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 36(2), pages 421-442, May.
- Kulish, Mariano & Rees, Daniel, 2011. "The yield curve in a small open economy," Journal of International Economics, Elsevier, vol. 85(2), pages 268-279.
- Barry Cozier & Greg Tkacz, .
"The Term Structure and Real Activity in Canada,"
94-3, Bank of Canada.
- Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006.
"The macroeconomy and the yield curve: a dynamic latent factor approach,"
Journal of Econometrics,
Elsevier, vol. 131(1-2), pages 309-338.
- Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
- Tom Doan, . "RATS programs to replicate Diebold,Rudebusch,Aruoba 2006 factor model," Statistical Software Components RTZ00047, Boston College Department of Economics.
- Ang, Andrew & Piazzesi, Monika, 2003.
"A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables,"
Journal of Monetary Economics,
Elsevier, vol. 50(4), pages 745-787, May.
- Andrew Ang & Monika Piazzesi, 2001. "A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables," NBER Working Papers 8363, National Bureau of Economic Research, Inc.
- Kozicki, Sharon & Tinsley, P. A., 2001.
"Shifting endpoints in the term structure of interest rates,"
Journal of Monetary Economics,
Elsevier, vol. 47(3), pages 613-652, June.
- Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
- Evans, Charles L. & Marshall, David A., 1998.
"Monetary policy and the term structure of nominal interest rates: Evidence and theory,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 49(1), pages 53-111, December.
- Charles L. Evans & David A. Marshall, 1997. "Monetary policy and the term structure of nominal interest rates: evidence and theory," Working Paper Series, Macroeconomic Issues WP-97-10, Federal Reserve Bank of Chicago.
- Lange, Ron, 1999. "The Expectations Hypothesis for the Longer End of the Term Structure: Some Evidence for Canada," Working Papers 99-20, Bank of Canada.
- Tao Wu, 2003. "Stylized facts on nominal term structure and business cycles: an empirical VAR study," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 901-906.
- Jim Day & Ron Lange, 1997. "The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation," Working Papers 97-10, Bank of Canada.
- David J. Bolder & Grahame Johnson & Adam Metzler, 2004. "An Empirical Analysis of the Canadian Term Structure of Zero-Coupon Interest Rates," Working Papers 04-48, Bank of Canada.
- Stephen Poloz & David Rose & Robert Tetlow, 1994. "The Bank of Canada's new Quarterly Projection Model (QPM): An introduction," Bank of Canada Review, Bank of Canada, vol. 1994(Autumn), pages 23-38.
- Fernandez-Perez, Adrian & Fernández-Rodríguez, Fernando & Sosvilla-Rivero, Simón, 2014. "The term structure of interest rates as predictor of stock returns: Evidence for the IBEX 35 during a bear market," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 21-33.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.