Daily Archives: Jul 12, 2019 at 07:10 am EST

Research Review | 12 July 2019 | Yield Curve Analysis

Yield Curve and Financial Uncertainty: Evidence Based on Us Data
Efrem Castelnuovo (University of Melbourne)
June 2019
How do short and long term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962-2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short and long term interest rates. The response of the short end of the yield curve (i.e., of short term interest rates) is found to be stronger than that of the long end (i.e., of long term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock.
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Macro Briefing: 12 July 2019

Tropical storm forces evacuations in Louisiana: WSJ
Tariffs pinched China’s exports in June: Reuters
No sign of easing tensions in US-China trade battle: Bloomberg
Eurozone industrial output rose more than expected in May: FT
Turkey receives first shipment of controversial Russian missile system: NY Times
Oil glut expected to return in 2020, IEA predicts: CNBC
US jobless claims fell to 3-month low last week: Bloomberg
Core consumer inflation in US unexpectedly ticked up to +2.1% in June: