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American Economic Review: Vol. 103 No. 6 (October 2013)

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

Article Citation

Kurmann, André, and Christopher Otrok. 2013. "News Shocks and the Slope of the Term Structure of Interest Rates." American Economic Review, 103(6): 2612-32.

DOI: 10.1257/aer.103.6.2612

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.

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Download Data Set (370.88 KB) | Online Appendix (926.68 KB) | Author Disclosure Statement(s) (78.73 KB)

Authors

Kurmann, André (Federal Reserve Board)
Otrok, Christopher (U MO and Federal Reserve Bank of St Louis)

JEL Classifications

E23: Macroeconomics: Production
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy
G12: Asset Pricing; Trading Volume; Bond Interest Rates
G14: Information and Market Efficiency; Event Studies; Insider Trading


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