Yield Curve and Macroeconomics (in progress)

(Work in progress)

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Preliminary Research Proposal

Research Questions

1. How does the level, slope and curvature of yield affects the macroeconomy (inflation, policy and activity) in the context of major EM countries.
2. Which is better indicator of recession: a) Slope or b) Near-term forward spread?

Empirical Strategy

1. Estimate the three latent yield factors - level, slope and curvature using Dynamic Nelson Siegel Model for major EM countries.
2. Use Panel VAR model to estimate the dynamic relationship between these factors and macro factors (policy rate, inflation and output) in the selected EM countries.

Figure 1: Yield curve slope has inverted to historically the lowest levels since GFC in advanced economies with no near-term signs of recession