The term structure of announcement effects
BIS Working Papers
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No
71
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03 June 1999
We analyse high-frequency responses of the US yield curve to macroeconomic
announcements, exploiting the high signal-to-noise ratios of these events.
Surprises in the announcements evoke relatively weak reactions from the short
maturities and the strong ones from the intermediate maturities. Thus the term
structure of announcement effects is hump-shaped. We fit an affine-yield model
to the yield changes, using the announcement surprises as instruments for the
Generalised Method of Moments (GMM). The model estimates imply that the
announcements impose larger shocks on an expected future target interest rate
than on the current short-term interest rate and that different types of
announcements generate different expectations about this target rate, how
rapidly it will be approached, and how long it will be maintained.
Key words: Announcements; Term structure: Expectations.
JEL classification: E43; E44; G14.