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The Slope of the U.S. Nominal Treasury Yield Curve and the Exchange Rate

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  • Matiur Rahman
  • Muhammad Mustafa

Abstract

This paper examines the role of the exchange rate in the determination of the slope of the nominal Treasury yield curve in the context of the U.S.A. Monthly data from June 1976 through June 2005 are utilized. This paper concludes that changes in the U.S. dollar value index significantly influence the changes in the slope of the U.S. nominal Treasury yield curve. As a result, the exchange rate should be included as one of the explanatory variables in the yield curve empirics.

Suggested Citation

  • Matiur Rahman & Muhammad Mustafa, 2009. "The Slope of the U.S. Nominal Treasury Yield Curve and the Exchange Rate," New York Economic Review, New York State Economics Association (NYSEA), vol. 40(1), pages 3-12.
    • Handle: RePEc:nye:nyervw:v:40:y:2009:i:1:p:3-12
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    References listed on IDEAS

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    1. Hordahl, Peter & Tristani, Oreste & Vestin, David, 2006. "A joint econometric model of macroeconomic and term-structure dynamics," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 405-444.
    2. 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.
    3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    4. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
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