Expectations and Risk Premia at 8:30am: Deciphering the Responses of Bond Yields to Macroeconomic Announcements
| Autor: | Eli M Remolona, Giorgio Valente, Peter Hördahl |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
Statistics and Probability
Inflation Economics and Econometrics History Polymers and Plastics Yield (finance) media_common.quotation_subject Risk premium 01 natural sciences Industrial and Manufacturing Engineering 010104 statistics & probability 0502 economics and business Econometrics Economics 0101 mathematics Business and International Management 050205 econometrics media_common Statistics::Applications Inflation targeting Bond 05 social sciences Output gap Yield curve Statistics Probability and Uncertainty Social Sciences (miscellaneous) Affine term structure model |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3091428 |
| Popis: | What explains the sharp movements of the yield curve upon the release of major U.S. macroeconomic announcements? To answer this question, we estimate an arbitrage-free dynamic term structure model with macroeconomic fundamentals as risk factors. We assume that the yield curve reacts to announcements primarily because of the information they contain about the fundamentals of output, inflation, and the Fed’s inflation target. We model the updating process by linking the factor shocks to announcement surprises. Fitting this process to data on yield curve movements in 20-min event windows, we find that most major announcements, especially those about the labor market, are informative largely about the output gap rather than about inflation. The resulting changes in short-rate expectations account for the bulk of observed yield movements. But adjustments in risk premia are also sizable. In partly offsetting the effects of short-rate expectations, these adjustments help to account for the well-known hump-shaped pattern of yield reactions across maturities. |
| Databáze: | OpenAIRE |
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