The Cyclicality of the Term Structure of Interest Rates

This paper highlights two stylized facts on the cyclical properties of the US yield curve. First, both the term spread and the term premium tend to increase during recessions. Second, there is a high, positive and persistent correlation between unemployment and both the term spread and the term premium. We present a complete macro-finance model with labor market frictions and unemployment which is consistent with these two facts. The model displays a finance-to-macro channel through financial market segmentation in which the net worth of financial intermediaries limits the degree of arbitrage across the term structure. A credit supply shock reduces the amount of funds available for financial institutions to buy long-term bonds, increasing both the term spread and the term premium, and producing a persistent recession. In contrast, following a negative technology shock, often proposed as the driver of positive term premiums during recessions, the term spreads displays counterfactual dynamics.

Date et heure: 
Jeudi 16 février 2023, 16:30 - 18:00
National Bank of Belgium, KU Leuven, UAntwerpen, UCLouvain, UGent, ULB, ULiège, UNamur and VUB
Antonio Moreno (University of Navarra)
Conference Room Lamfalussy, entrance: rue de Berlaimont 14, 1000 Brussels & Microsoft Teams meeting
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