Yield Curve Dynamics and Fiscal Policy Shocks

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F62156489%3A43110%2F25%3A43926823" target="_blank" >RIV/62156489:43110/25:43926823 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/00216208:11230/25:10511036

Výsledek na webu

<a href="https://doi.org/10.1016/j.jedc.2025.105144" target="_blank" >https://doi.org/10.1016/j.jedc.2025.105144</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.jedc.2025.105144" target="_blank" >10.1016/j.jedc.2025.105144</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Yield Curve Dynamics and Fiscal Policy Shocks

Popis výsledku v původním jazyce

This paper examines how anticipated, unanticipated, and uncertainty shocks in U.S. government spending affect the term structure of interest rates, showing that fiscal policy design significantly influences the yield curve and financing costs. Combining a recursively-identified fiscal SVAR with an affine term-structure model that incorporates five-year Congressional Budget Office projections and the Economic Policy Uncertainty index, we recover three orthogonal fiscal shocks and trace their effects on bond markets and economic activity. We find that heightened fiscal policy uncertainty induces a flight to quality, causing immediate declines in Treasury yields. Unanticipated spending shocks have a limited impact on yields, underscoring the forward-looking nature of financial markets. Anticipated spending shocks also lower yields as investors adjust expectations about future macroeconomic conditions. Contrary to traditional views, we observe a contractionary effect on real GDP growth, as lower yields reinforce precautionary behavior among households and firms. Our macro-finance framework captures the bidirectional relationship between macroeconomic expectations and financial markets, highlighting the critical role of the yield curve in transmitting fiscal policy shocks to the real economy.

Název v anglickém jazyce

Yield Curve Dynamics and Fiscal Policy Shocks

Popis výsledku anglicky

This paper examines how anticipated, unanticipated, and uncertainty shocks in U.S. government spending affect the term structure of interest rates, showing that fiscal policy design significantly influences the yield curve and financing costs. Combining a recursively-identified fiscal SVAR with an affine term-structure model that incorporates five-year Congressional Budget Office projections and the Economic Policy Uncertainty index, we recover three orthogonal fiscal shocks and trace their effects on bond markets and economic activity. We find that heightened fiscal policy uncertainty induces a flight to quality, causing immediate declines in Treasury yields. Unanticipated spending shocks have a limited impact on yields, underscoring the forward-looking nature of financial markets. Anticipated spending shocks also lower yields as investors adjust expectations about future macroeconomic conditions. Contrary to traditional views, we observe a contractionary effect on real GDP growth, as lower yields reinforce precautionary behavior among households and firms. Our macro-finance framework captures the bidirectional relationship between macroeconomic expectations and financial markets, highlighting the critical role of the yield curve in transmitting fiscal policy shocks to the real economy.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50206 - Finance

Projekt

<a href="/cs/project/GA22-34451S" target="_blank" >GA22-34451S: Nové metody v oceňování vládního dluhu: nejistota a hospodářsko-politické implikace</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2025

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Journal of Economic Dynamics and Control

ISSN

0165-1889

e-ISSN

1879-1743

Svazek periodika

178

Číslo periodika v rámci svazku

September

Stát vydavatele periodika

NL - Nizozemsko

Počet stran výsledku

22

Strana od-do

105144

Kód UT WoS článku

001540548900002

EID výsledku v databázi Scopus

2-s2.0-105011085313