|Date/Time||28 Sep 2012, 3:40 pm - 5:00 pm|
|Speaker(s)||Chrisopher M. Otrok (University of Missouri)|
28 Sep 2012, 3:40 pm - 5:00 pm
"News Shocks and the Slope of the Term Structure of Interest Rates," with Christopher M. Otrok, University of Missouri
Christopher Otrok is currently a Professor and the Sam B. Cook chair in Economics at the University of Missouri. He is also a Research Fellow at the Federal Reserve Bank of St Louis and Co-Editor of the Journal of Economic Dynamics and Control. Before moving to Missouri he was a Professor of Economics at the University of Virginia. Otrok has been a Visiting Scholar at the Federal Reserve Banks of Atlanta, Minneapolis, New York and Philadelphia. He has also been a consultant to the IMF and has been awarded a Fulbright Senior Specialist grant to lecture at CERGE-EI in Prague. His work has appeared in journals such as the American Economic Review, Journal of Monetary Economics, Journal of International Economics, International Economic Review, Review of Economic Dynamics, Journal of Applied Econometrics and European Economic Review. Otrok earned his PhD in Economics in 1999 from the University of Iowa.
Abstract: We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the termstructure of interest rates. We find that one single shock can explain the majority of all unpredictable movements in the slope over a 10-year forecast horizon. Impulse response functions lead us to interpret this shock as news about future total factor productivity (TFP). We confirm this interpretation formally by identifying a TFP news shock following recent work by Barsky and Sims (2011). By showing that the 'slope shock' and the 'TFP news shock' are closely related, we provide a new explanation for the relationship between the slope of the term structure and macroeconomic fundamentals and for why the yield curve is one of the most reliable predictors of future economic growth. Our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance.