IDEAS home Printed from https://ideas.repec.org/p/bny/wpaper/0124.html
   My bibliography  Save this paper

Uncertainty and the Term Structure of Interest Rates

Author

Listed:
  • Jamie L. Cross
  • Aubrey Poon
  • Dan Zhu

Abstract

We present a new stylized fact about the link between uncertainty and the term structure of interest rates: Unexpectedly heightened uncertainty elicits a lower, steeper, and flatter yield curve. This result is established through a Yields-Macro model that includes dynamic Nelson-Siegel factors of U.S. Treasury yields, and accounts for endogenous feed back with observable measures of uncertainty, monetary policy, and macroeconomic aggregates. It is also robust to three distinct measures of uncertainty pertaining to the financial sector, the macroeconomy and economic policy. An efficient Bayesian algorithm for estimating the class of Yields-Macro models is also developed.

Suggested Citation

  • Jamie L. Cross & Aubrey Poon & Dan Zhu, 2023. "Uncertainty and the Term Structure of Interest Rates," Working Papers No 12/2023, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0124
    as

    Download full text from publisher

    File URL: https://hdl.handle.net/11250/3096684
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
    2. Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chuku Chuku & Paul Middleditch, 2020. "Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter," Manchester School, University of Manchester, vol. 88(3), pages 373-404, June.
    2. Manuela Goretti, 2005. "The Brazilian currency turmoil of 2002: a nonlinear analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 289-306.
    3. Léleng Kebalo & Hamitande Dout & Mawuli K. Couchoro & Stéphane Zouri, 2022. "Intégration – commerciale, budgétaire, financière – régionale et inégalités de revenu dans la Communauté Economique des Etats de l'Afrique de l'Ouest (CEDEAO)," African Development Review, African Development Bank, vol. 34(S1), pages 102-116, July.
    4. Paolo Manasse, 2005. "Deficit Limits, Budget Rules, and Fiscal Policy," IMF Working Papers 2005/120, International Monetary Fund.
    5. D’Erasmo, P. & Mendoza, E.G. & Zhang, J., 2016. "What is a Sustainable Public Debt?," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2493-2597, Elsevier.
    6. Raggi, Davide & Bordignon, Silvano, 2012. "Long memory and nonlinearities in realized volatility: A Markov switching approach," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3730-3742.
    7. Aygun Garayeva & Gulzar Tahirova, 2017. "Government Spending Effectiveness and the Quality of Fiscal Institutions," Business & Management Compass, University of Economics Varna, issue 2, pages 128-143.
    8. Sangyup Choi & Davide Furceri & João Tovar Jalles, 2022. "Heterogeneous gains from countercyclical fiscal policy: new evidence from international industry-level data [Optimal investment with costly reversibility]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 773-804.
    9. Brahmbhatt, Milan & Canuto, Otaviano & Vostroknutova, Ekaterina, 2010. "Dealing with Dutch Disease," World Bank - Economic Premise, The World Bank, issue 16, pages 1-7, June.
    10. Michaud, Amanda & Rothert, Jacek, 2018. "Redistributive fiscal policies and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 123-133.
    11. Steven A. Symansky & Thomas Baunsgaard, 2009. "Automatic Fiscal Stabilizers," IMF Staff Position Notes 2009/23, International Monetary Fund.
    12. Ngomba Bodi, Francis Ghislain, 2022. "External constraint and procyclicality of monetary policy of the Bank of Central African States (BEAC)," MPRA Paper 116375, University Library of Munich, Germany.
    13. Kristina Spantig, 2015. "The role of the financial sector in enhancing economic growth in the Lao People’s Democratic Republic," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 22(1), pages 67-98, June.
    14. Ocampo Jose Antonio, 2010. "Rethinking Global Economic and Social Governance," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-29, January.
    15. João T. Jalles, 2022. "Do credit rating agencies reward fiscal prudence?," International Finance, Wiley Blackwell, vol. 25(1), pages 2-22, April.
    16. Didier, Tatiana & Hevia, Constantino & Schmukler, Sergio L., 2011. "How resilient and countercyclical were emerging economies to the global financial crisis ?," Policy Research Working Paper Series 5637, The World Bank.
    17. Vito Tanzi, 2005. "Fiscal Policy and Fiscal Rules in the European Union," CASE Network Studies and Analyses 0301, CASE-Center for Social and Economic Research.
    18. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92, National Bureau of Economic Research, Inc.
    19. Kuralbayeva, Karlygash, 2013. "Optimal fiscal policy and different degrees of access to international capital markets," Journal of Development Economics, Elsevier, vol. 103(C), pages 336-352.
    20. Owyang, Michael T. & Piger, Jeremy & Wall, Howard J., 2013. "Discordant city employment cycles," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 367-384.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bny:wpaper:0124. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Helene Olsen (email available below). General contact details of provider: https://edirc.repec.org/data/cambino.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.