Working Paper: NBER ID: w10616
Authors: Francis X. Diebold; Glenn D. Rudebusch; S. Boragan Aruoba
Abstract: We estimate a model that summarizes the yield curve using latent factors (specifically, level, slope, and curvature) and also includes observable macroeconomic variables (specifically, real activity, inflation, and the monetary policy instrument). Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve. We find strong evidence of the effects of macro variables on future movements in the yield curve and evidence for a reverse influence as well. We also relate our results to the expectations hypothesis.
Keywords: Yield Curve; Macroeconomy; Latent Factors; Monetary Policy; Expectations Hypothesis
JEL Codes: G1; E4; C5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic variables (E19) | yield curve (E43) |
| yield curve (E43) | macroeconomic developments (E66) |
| macroeconomic variables (E19) | yield curve movements (E43) |
| yield curve components (E43) | macroeconomic variables (E19) |
| yield curve (E43) | capacity utilization (E23) |
| yield curve (E43) | inflation (E31) |