Term structure surprises: the predictive content of curvature, level, and slope
- 22 November 2010
- journal article
- research article
- Published by Wiley in Journal of Applied Econometrics
- Vol. 27 (4) , 574-602
Abstract
SUMMARY: This paper analyzes the predictive content of the term structure components level, slope, and curvature within a dynamic factor model of macroeconomic and interest rate data. Surprise changes of the three components are identified using sign restrictions, and their macroeconomic underpinnings are studied via impulse response analysis. The curvature factor is found to carry predictive information both about the future evolution of the yield curve and the macroeconomy. In particular, unexpected increases of the curvature factor precede a flattening of the yield curve and announce a significant decline of output more than 1 year ahead. Copyright © 2010 John Wiley & Sons, Ltd.Keywords
Funding Information
- German National Academic Foundation and the Deutsche Forschungsgemeinschaft
- National Research Center 649 ‘Economic Risk’
This publication has 25 references indexed in Scilit:
- News Shocks and the Slope of the Term Structure of Interest RatesSSRN Electronic Journal, 2010
- Normalization in EconometricsEconometric Reviews, 2007
- The macroeconomy and the yield curve: a dynamic latent factor approachJournal of Econometrics, 2006
- What does the yield curve tell us about GDP growth?Journal of Econometrics, 2006
- Forecasting the term structure of government bond yieldsJournal of Econometrics, 2006
- Macro Factors and the Term Structure of Interest RatesJournal of Money, Credit and Banking, 2006
- Modeling Bond Yields in Finance and MacroeconomicsAmerican Economic Review, 2005
- NUMERICAL METHODS FOR ESTIMATION AND INFERENCE IN BAYESIAN VAR-MODELSJournal of Applied Econometrics, 1997
- Bayes FactorsJournal of the American Statistical Association, 1995
- The Term Structure as a Predictor of Real Economic ActivityThe Journal of Finance, 1991