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The impact of macroeconomic news sentiment on interest rates

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  • Audrino, Francesco
  • Offner, Eric A.

Abstract

We provide evidence that sentiment extracted from articles related to interest rates, inflation, and the labor market has the ability to explain short-term interest rate movements that cannot be accounted for by professionals’ and consumers’ expectations. Additionally, sentiment can pin down two short rate regimes that are correlated with the business cycle. By combining these results with a yield curve model, we find that market sentiment has a statistically significant negative effect on the short end of the yield curve and a positive effect on the slope. We also show that sentiment improves the out-of-sample forecast accuracy of short-term yields.

Suggested Citation

  • Audrino, Francesco & Offner, Eric A., 2024. "The impact of macroeconomic news sentiment on interest rates," International Review of Financial Analysis, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finana:v:94:y:2024:i:c:s1057521924002254
    DOI: 10.1016/j.irfa.2024.103293
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    More about this item

    Keywords

    Yield Curve; News sentiment; Macroeconomic variables; Regime-Switching Models;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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