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Further Evidence on the Impact of Economic News on Interest Rates

Author

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  • Dominique Guégan,Florian Ielpo

    (Centre d'Economie de la Sorbonne, Paris)

Abstract
We investigate the shape of the term structure reaction of the US swap rates to announcements using several linear and non-linear time series models. We document the non-linearity of the market reaction to macroeconomic news. First, we find that the introduction of non linear models leads to the finding of a significant number of macroeconomic figures that actually produce an effect over the yield curve. Second, we noticed at least four types of patterns in the term structure reaction of interest rates across maturities, including the humpshaped one that is generally considered. Third, we propose a first interpretation and classification of these different shapes. Fourth we find that the existence of outliers in interest rates leads to an underestimation of the reaction of interest rates to announcements, explaining the different results obtained between high-frequency and daily datasets.

Suggested Citation

  • Dominique Guégan,Florian Ielpo, 2009. "Further Evidence on the Impact of Economic News on Interest Rates," Frontiers in Finance and Economics, SKEMA Business School, vol. 6(2), pages 1-45, October.
    • Handle: RePEc:ffe:journl:v:6:y:2009:i:2:p:1-45
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    Cited by:

    1. Melanie-Kristin Beck & Bernd Hayo & Matthias Neuenkirch, 2013. "Central bank communication and correlation between financial markets: Canada and the United States," International Economics and Economic Policy, Springer, vol. 10(2), pages 277-296, June.
    2. repec:dau:papers:123456789/9305 is not listed on IDEAS
    3. Aymen Belgacem, 2009. "Fundamentals, Macroeconomic Announcements and Asset Prices," EconomiX Working Papers 2009-16, University of Paris Nanterre, EconomiX.
    4. Marie Briere & Florian Ielpo, 2007. "Yield curve reaction to macroeconomic news in Europe :disentangling the US influence," Working Papers CEB 07-038.RS, ULB -- Universite Libre de Bruxelles.
    5. Di Maggio, Marco, 2010. "The Political Economy of the Yield Curve," MPRA Paper 20697, University Library of Munich, Germany.

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    More about this item

    Keywords

    Macroeconomic Announcements; Interest Rates Dynamic; Outliers; Reaction Function; Principal Component Analysis.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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