This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Macroeconomic Models and the Yield Curve: An assessment of the Fit

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Chadha, J.S.
Holly, S.

Additional information is available for the following registered author(s):

Abstract

Many have questioned the empirical relevance of the Calvo-Yun model. This paper appends three widely-studied macroeconomic models (Calvo-Yun, Hybrid and Svensson) with forward rate curves. We back out from observations on the yield curve the underlying macroeconomic model that most closely matches the level, slope and curvature of the yield curve. With each model we trace the response of the yield curve to macroeconomic shocks. We assess the fit of each model with the observed behaviour in forward rates. We find limited support for Calvo-Yun model in terms of fit with the observed yield curve but we find some support for each of the Hybrid and Svensson models. We conclude that macroeconomic persistence seems to be priced into the yield curve.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0640.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0640.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 44
Date of creation: May 2006
Date of revision:
Handle: RePEc:cam:camdae:0640

Note: Ec
Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

For technical questions regarding this item, or to correct its listing, contact: (Howard Cobb).

Related research
Keywords: Macromodels; Yield Curve; Persistence;

Other versions of this item:

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

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. Sean Holly & Luisa Corrado, 2004. "Habit formation and Interest-Rate Smoothing," Computing in Economics and Finance 2004 215, Society for Computational Economics.
    Other versions:
  2. Soderlind, Paul, 1999. "Solution and estimation of RE macromodels with optimal policy," European Economic Review, Elsevier, vol. 43(4-6), pages 813-823, April. [Downloadable!] (restricted)
    Other versions:
  3. Stephen J. Turnovsky, 1989. "The Term Structure of Interest Rates and the Effects of Macroeconomic Policy," NBER Working Papers 2902, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. King, Robert G & Watson, Mark W, 1998. "The Solution of Singular Linear Difference Systems under Rational Expectations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1015-26, November.
  5. 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. [Downloadable!] (restricted)
    Other versions:
  6. 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. [Downloadable!] (restricted)
    Other versions:
  7. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips Curve," Finance and Economics Discussion Series 2001-30, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  8. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December. [Downloadable!] (restricted)
  9. Jagjit S. Chadha & Peter Macmillan & Charles Nolan, 2006. " Independence Day for the “Old Lady”: A Natural Experiment on the Implications of Central Bank Independence," CDMA Working Paper Series 0602, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
    Other versions:
  10. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies. [Downloadable!]
    Other versions:
  11. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
  12. Amato, Jeffery D. & Laubach, Thomas, 2003. "Rule-of-thumb behaviour and monetary policy," European Economic Review, Elsevier, vol. 47(5), pages 791-831, October. [Downloadable!] (restricted)
  13. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Finance and Economics Discussion Series 2003-50, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  14. Tao Wu & Glenn Rudebusch, 2004. "A Macro-Finance Model of the Term Structure, Monetary Policy, and the Economy," 2004 Meeting Papers 104, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  15. Antonio Moreno & Geert Bekaert & Seonghoon Cho, 2004. "New-Keynesian Macroeconomics and the Term Structure," 2004 Meeting Papers 388, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  16. 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. [Downloadable!] (restricted)
    Other versions:
  17. Narayana R. Kocherlakota, 2000. "Creating business cycles through credit constraints," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-10. [Downloadable!]
  18. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
    Other versions:
  20. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
    Other versions:
  21. Monika Piazzesi, 2005. "Bond Yields and the Federal Reserve," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 311-344, April.
  22. Knez, Peter J & Litterman, Robert & Scheinkman, Jose Alexandre, 1994. " Explorations into Factors Explaining Money Market Returns," Journal of Finance, American Finance Association, vol. 49(5), pages 1861-82, December. [Downloadable!] (restricted)
  23. Tore Ellingsen & Ulf Soderstrom, 2001. "Monetary Policy and Market Interest Rates," American Economic Review, American Economic Association, vol. 91(5), pages 1594-1607, December. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? You can use convenient plug-ins to search directly IDEAS from your browser.

This page was last updated on 2009-11-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.