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Low frequency effects of macroeconomic news on government bond yields

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  • Altavilla, Carlo
  • Giannone, Domenico
  • Modugno, Michele

Abstract

Are macroeconomic releases important drivers of Treasury bond yields? We develop a two-step regression strategy that fully exploits the available high-frequency market reaction data to identify the impact of macroeconomic releases and to quantify the effects at lower frequencies. While macroeconomic surprises explain only one tenth of the daily variation in bond yields, their explanatory power improves substantially at lower frequencies, accounting for one third of quarterly variations. The finding is explained by the persistent effects that macroeconomic surprises exert on bond yields, and a less persistent impact of residual factors, which tend to average out when focusing on longer-horizon changes.

Suggested Citation

  • Altavilla, Carlo & Giannone, Domenico & Modugno, Michele, 2017. "Low frequency effects of macroeconomic news on government bond yields," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 31-46.
  • Handle: RePEc:eee:moneco:v:92:y:2017:i:c:p:31-46
    DOI: 10.1016/j.jmoneco.2017.08.004
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    More about this item

    Keywords

    Macroeconomic announcement; News; Treasury bond yield;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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: Models and Applications
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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