Information in the yield curve: A Macro-Finance approach

Arbeitspapier

We use a macro-finance model, incorporating macroeconomic and financial factors, to study the term premium in the U.S. bond market. Estimating the model using Bayesian techniques, we find that a single factor explains most of the variation in bond risk premiums. Furthermore, the model-implied risk premiums account for up to 40% of the variability of one- and two-year excess returns. Using the model to decompose yield spreads into an expectations and a term premium component, we find that, although this decomposition does not seem important to forecast economic activity, it is crucial to forecast inflation for most forecasting horizons.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 254

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Money and Interest Rates: Forecasting and Simulation: Models and Applications
• Subject: Macro-finance model ; Yield curve ; Expectations hypothesis ; Rentenmarkt ; Zinsstruktur ; Erwartungsbildung ; Schätzung ; Bayes-Statistik ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dewachter, Hans ; Iania, Leonardo ; Lyrio, Marco
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/144466
• Last update: 10.03.2025, 11:43 AM CET