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A Macroeconomic Analysis of the Latent Factors of the Yield Curve: Curvature and Real Activity

In: Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models

Author

Listed:
  • Matteo Modena

Abstract

Examining the relation between yields at different maturities is crucial for both macroeconomists and financial economists. From a macro-economic perspective, the short rate is the policy instrument under the control of the monetary authority; however, from a financial perspective, movements in short-term rates are analyzed to forecast longer yields’ dynamics, since yields on long-term bonds are the expected average of risk-adjusted future spot rates. Moreover, the dynamics of the term structure (TS) is influenced both by monetary policy actions and by expectations about policy announcements; while, on the other hand, economists infer the future path of macro variables from different shapes of the yield curve.

Suggested Citation

  • Matteo Modena, 2011. "A Macroeconomic Analysis of the Latent Factors of the Yield Curve: Curvature and Real Activity," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Financial Econometrics Modeling: Derivatives Pricing, Hedge Funds and Term Structure Models, chapter 7, pages 121-146, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29520-9_7
    DOI: 10.1057/9780230295209_7
    as

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