IDEAS home Printed from https://ideas.repec.org/a/fip/fedlrv/y2006imarp133-144nv.88no.2.html
   My bibliography  Save this article

Macroeconomic news and real interest rates

Author

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.

Suggested Citation

  • Kevin L. Kliesen & Frank A. Schmid, 2006. "Macroeconomic news and real interest rates," Review, Federal Reserve Bank of St. Louis, vol. 88(Mar), pages 133-144.
    • Handle: RePEc:fip:fedlrv:y:2006:i:mar:p:133-144:n:v.88no.2
    as

    Download full text from publisher

    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/06/03/KliesenSchmid.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.).
    2. 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.
    3. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    4. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Dec), pages 31-50.
    5. Amemiya, Takeshi, 1977. "A note on a heteroscedastic model," Journal of Econometrics, Elsevier, vol. 6(3), pages 365-370, November.
    6. Pierluigi Balduzzi & Edwin J. Elton & T. Clifton Green, 1996. "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 96-13, New York University, Leonard N. Stern School of Business-.
    7. William Poole & Robert Rasche, 2000. "Perfecting the Market's Knowledge of Monetary Policy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 255-298, December.
    8. Janet L. Yellen, 2005. "Views on the economy and implications for monetary policy," Speech 11, Federal Reserve Bank of San Francisco.
    9. Refet S. Gürkaynak & Brian P. Sack & Eric T. 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.
    10. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    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.
    12. William Poole & Robert H. Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 65-94.
    13. Laurence Weiss, 2006. "Inflation indexed bonds and monetary theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(1), pages 271-275, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kevin L. Kliesen, 2007. "How well does employment predict output?," Review, Federal Reserve Bank of St. Louis, vol. 89(Sep), pages 433-446.
    2. 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.
    3. Constantine Alexandrakis, 2014. "Technological change and the U.S. real interest rate," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 672-686, October.
    4. Brevik, Frode & d'Addona, Stefano, 2013. "Is Ignorance Bliss? The Cost Of Business-Cycle Uncertainty," Macroeconomic Dynamics, Cambridge University Press, vol. 17(4), pages 728-746, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kevin L. Kliesen & Frank A. Schmid, 2004. "Do productivity growth, budget deficits, and monetary policy actions affect real interest rates? evidence from macroeconomic announcement data," Working Papers 2004-019, Federal Reserve Bank of St. Louis.
    2. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
    3. Refet S. Gürkaynak & Andrew T. Levin & Andrew N. Marder & Eric T. Swanson, 2007. "Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 11, pages 415-465, Central Bank of Chile.
    4. Valente, Giorgio, 2009. "International interest rates and US monetary policy announcements: Evidence from Hong Kong and Singapore," Journal of International Money and Finance, Elsevier, vol. 28(6), pages 920-940, October.
    5. Bruce Mizrach & Christopher J. Neely, 2007. "The microstructure of the U.S. treasury market," Working Papers 2007-052, Federal Reserve Bank of St. Louis.
    6. Marfatia, Hardik A., 2015. "Monetary policy's time-varying impact on the US bond markets: Role of financial stress and risks," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 103-123.
    7. Swanson, Eric T., 2021. "Measuring the effects of federal reserve forward guidance and asset purchases on financial markets," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 32-53.
    8. James D. Hamilton, 2009. "Daily Changes in Fed Funds Futures Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 567-582, June.
    9. Albuquerque, Rui & Vega, Clara, 2006. "Asymmetric Information in the Stock Market: Economic News and Co-movement," CEPR Discussion Papers 5598, C.E.P.R. Discussion Papers.
    10. Baumeister, Christiane, 2021. "Measuring Market Expectations," CEPR Discussion Papers 16520, C.E.P.R. Discussion Papers.
    11. Chris Florackis & Alexandros Kontonikas & Alexandros Kostakis, 2010. "Transmission of macro-liquidity shocks to liquidity-sorted stock portfolios’ returns: The role of the financial crisis," Working Papers 2011_22, Business School - Economics, University of Glasgow, revised Apr 2011.
    12. Pierre L. Siklos & Martin T. Bohl, 2008. "Policy words and policy deeds: the ECB and the euro," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 247-265.
    13. James D. Hamilton, 2007. "Assessing Monetary Policy Effects Using Daily Fed Funds Futures Contracts," NBER Working Papers 13569, National Bureau of Economic Research, Inc.
    14. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    15. Monticini & Vaciago, 2004. "Are Europe Interest Rates led by FED's Announcements?," Macroeconomics 0407025, University Library of Munich, Germany.
    16. Joshua D. Angrist & Òscar Jordà & Guido M. Kuersteiner, 2018. "Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(3), pages 371-387, July.
    17. Piazzesi, Monika & Swanson, Eric T., 2008. "Futures prices as risk-adjusted forecasts of monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 677-691, May.
    18. Sun, Rongrong, 2020. "Monetary policy announcements and market interest rates’ response: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 113(C).
    19. Toni Gravelle & Richhild Moessner, 2001. "Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency," Staff Working Papers 01-5, Bank of Canada.
    20. Marie Musard-Gies, 2005. "Do ECB's statements steer short-term and long-term interest rates in the euro zone?," Money Macro and Finance (MMF) Research Group Conference 2005 56, Money Macro and Finance Research Group.

    More about this item

    Keywords

    Interest rates;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:2006:i:mar:p:133-144:n:v.88no.2. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Scott St. Louis (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.