English, Article, Journal or magazine article edition: Macro factors and the term structure of interest rates Hans Dewachter; Marco Lyrio

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Bookmark: http://trove.nla.gov.au/version/34239
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Macro Factors and the Term Structure of Interest Rates
Author
  • Hans Dewachter
  • Marco Lyrio
Physical Description
  • preprint
Notes
  • RePEc:mmf:mmfc03:25
  • RePEc:kul:kulwps:wpie007
  • RePEc:ete:ceswps:ces0304
  • This paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long-run expectations. The model extends the approach pioneered by Kozicki and Tinsley (2001) by modelling consistently long-run inflation expectations simultaneously with the term structure. This model thus avoids the standard pre-filtering of long-run expectations, as proposed by Kozicki and Tinsley (2001). Application to the U.S. economy shows the importance of long-run inflation expectations in the modelling of long-term bonds. The paper also provides a macroeconomic interpretation for the factors found in a latent factor model of the term structure. More specifically, we find that the standard "level" factor is highly correlated to long-run inflation expectations, the "slope" factor captures temporary business cycle conditions, while the "curvature" factor represents a clear independent monetary policy factor.
  • essentially affine term structure model, macroeconomic factors, long-run market expectations, monetary policy rule
  • RePEc:kul:kulwps:ces0304
Language
  • English
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