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The yield curve and the macro-economy across time and frequencies

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  • Luís Aguiar-Conraria

    ()
    (NIPE, Escola de Economia e Gestão, Universidade do Minho)

  • Manuel M. F. Martins

    ()
    (Cef.up, Faculdade de Economia, Universidade do Porto)

  • Maria Joana Soares

    ()
    (Departmento de Matemática, Universidade do Minho)

Abstract

This paper assesses the relation between the yield curve and the main macroeconomic variables in the U.S. between early 1960s and 2010 across time and frequencies, using wavelet analyses. The shape of the yield curve is modelled by latent factors corresponding to its level, slope and curvature, estimated by maximum likelihood with the Kalman filter. The macroeconomic variables measure economic activity, unemployment, inflation and the fed funds rate. The cross wavelet tools employed — coherency and phase difference —, the set of variables and the length of the sample, allow for a thorough appraisal of the timevariation and structural breaks in the direction, intensity, synchronization and periodicity of the relation between the yield curve and the macro-economy. Our evidence establishes a number of new stylized facts on the yield curve-macro relation; and sheds light on several results found in the literature, which could not have been achieved with analyses conducted strictly in the time-domain (as most of the literature) or purely in the frequency-domain.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1004.

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Length: 38 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:por:cetedp:1004

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Keywords: Macro-finance; Yield curve; Kalman filter; Continuous wavelet transform; Wavelet coherency; Phase-difference.;

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References

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Cited by:
  1. Rita Sousa & Luís Aguiar-Conraria & Maria Joana Soares, 2014. "Carbon Financial Markets: a time-frequency analysis of CO2 price drivers," NIPE Working Papers 03/2014, NIPE - Universidade do Minho.
  2. Vacha, Lukas & Janda, Karel & Kristoufek, Ladislav & Zilberman, David, 2013. "Time–frequency dynamics of biofuel–fuel–food system," Energy Economics, Elsevier, vol. 40(C), pages 233-241.
  3. Jozef Barunik & Evzen Kocenda & Lukas Vacha, 2013. "Gold, Oil, and Stocks," Papers 1308.0210, arXiv.org, revised Mar 2014.
  4. Luís Aguiar-Conraria & Pedro Magalhães & Maria Soares, 2013. "The nationalization of electoral cycles in the United States: a wavelet analysis," Public Choice, Springer, vol. 156(3), pages 387-408, September.
  5. Gallegati, Marco & Ramsey, James B. & Semmler, Willi, 2014. "Interest rate spreads and output: A time scale decomposition analysis using wavelets," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 283-290.

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