A structural decomposition of the US yield curve |
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Authors: | Ferre De Graeve Marina Emiris |
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Affiliation: | a Federal Reserve Bank of Dallas, 2200 N. Pearl St., Dallas, TX 75201, USA b National Bank of Belgium, Berlaimontlaan 4, 1000 Brussels, Belgium |
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Abstract: | By expanding the macro part of macro-finance models, historical fluctuations in US bond yields turn out to be largely consistent with the rational expectations hypothesis. We estimate a medium-scale macro-finance DSGE model of the term structure to establish this. Our finding contrasts with existing macro-finance models and suggests that their—small-scale or non-structural—perspective on the macroeconomy mutes expectations, thereby underestimating the expectations hypothesis’ potential. Out-of-sample forecasts are competitive with more flexible term structure models. Given the empirical validation, we interpret various episodes through the lens of the model and investigate which structural shocks cause the yield curve to contain information about future growth. |
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Keywords: | E31 E32 E43 E44 E52 G12 |
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