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Macroeconomic news and real interest rates

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Author Info
Kevin L. Kliesen
Frank A. Schmid

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Abstract

Economic news affects the perceptions of investors, forecasters, and policymakers about the strength or weakness of the economy. These expectations are updated on the basis of regularly occurring surprises in macroeconomic announcement data. The response of asset prices to positive or negative announcement surprises has been a regular feature of the literature for more than 20 years. In this vein, the authors evaluate the responses of the yield of 10-year Treasury inflation-indexed securities to nearly three dozen macroeconomic announcements. They find that the real long-term rate of interest responds positively to surprises in a handful of key macroeconomic indicators, including labor productivity growth. Also, the authors find no support for the proposition that the Federal Reserve has information about its actions or the state of the real economy that is not in the pubic domain and, hence, not already priced in the real long-term interest rate.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2006)
Issue (Month): Mar ()
Pages: 133-144
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Handle: RePEc:fip:fedlrv:y:2006:i:mar:p:133-144:n:v.88no.2

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Keywords: Interest rates;

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References listed on IDEAS
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.:
  1. Janet L. Yellen, 2005. "Views on the economy and implications for monetary policy," Speech, Federal Reserve Bank of San Francisco, issue Sep 8. [Downloadable!]
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  2. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2002. "Market-based measures of monetary policy expectations," Finance and Economics Discussion Series 2002-40, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  3. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  4. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York. [Downloadable!]
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  5. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94. [Downloadable!]
  6. Laurence Weiss, 2006. "Inflation indexed bonds and monetary theory," Economic Theory, Springer, vol. 27(1), pages 271-275, 01. [Downloadable!] (restricted)
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  8. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
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  9. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer, vol. 18(2), pages 255-298, December. [Downloadable!] (restricted)
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  10. Pierluigi Balduzzi & Edwin J. Elton & T. Clifton Green, 1997. "Economic News and the Yield Curve: Evidence from the U.S. Treasury Market," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-005, New York University, Leonard N. Stern School of Business-.
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  11. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March. [Downloadable!]
  12. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Kevin L. Kliesen, 2007. "How well does employment predict output?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 433-446. [Downloadable!]
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