The Macroeconomy and the Yield Curve: A Review of the Literature with Some New Evidence

Abstract

This work focuses on the recent literature - started by the seminal article of Ang and Piazzesi (2003) - aimed at developing macro-finance models that combine finance specifications of the term structure of interest rates with standard macroeconomic aggregate relationships for output and inflation. We review the alternative models proposed in this new literature and discuss their main features. An alternative analysis based on the theory of cointegrated vector autoregressive models is developed and tested with the data available for the US.

Keywords: Yield curve, term structure, interest rates, macroeconomic fundamentals, factor model

JEL Classification: G1, E4, C5