American Economic Review Vol. 103 No. 6 2013

News Shocks and the Slope of the Term Structure of Interest Rates

André Kurmann¹; Christopher Otrok²

¹ Federal Reserve Board, 20th and C St. NW, Mail stop 77, Washington, DC 20551. · ² Department of Economics, University of Missouri, 909 University Avenue, Columbia, MO 65211, and Federal Reserve Bank of St. Louis.

Abstract

We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates. We find that one shock can explain the majority of unpredictable movements in the slope. Impulse response functions lead us to interpret this shock as news about future total factor productivity (TFP). By showing that “slope shocks” are essentially “TFP news shocks” we provide a new explanation for the relationship between the slope and macroeconomic fundamentals. Our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance.

DOI

10.1257/aer.103.6.2612

Volume

103

Issue

6

Pages

2612-2632

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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