Please use this identifier to cite or link to this item:
Dewachter, Hans
Iania, Leonardo
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 2950
This paper extends the benchmark Macro-Finance model by introducing, next to the standard macroeconomic factors, additional liquidity-related and return forecasting factors. Liquidity factors are obtained from a decomposition of the TED spread while the return-forecasting (risk premium) factor is extracted by imposing a single factor structure on the one-period expected excess holding returns. The model is estimated on US data using MCMC techniques. Two findings stand out. First, the model outperforms significantly most structural and non-structural Macro-Finance yield curve models in terms of cross-sectional fit of the yield curve. Second, we find that financial shocks, either in the form of liquidity or risk premium shocks, have a statistically and economically significant impact on the yield curve. The impact of financial shocks extends throughout the yield curve but is most pronounced at the high and intermediate frequencies.
yield curve
affine models
macroeconomics and financial factors
Bayesian estimation
Document Type: 
Working Paper

Files in This Item:
653.47 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.