The asymmetric impact of macroeconomic announcements on U.S. Government bond rate level and volatility

Munich Personal RePEc Archive

The asymmetric impact of

macroeconomic announcements on U.S.

Government bond rate level and volatility

Tuysuz, Sukriye

15 September 2007

Online at https://mpra.ub.uni-muenchen.de/5381/

MPRA Paper No. 5381, posted 19 Oct 2007 UTC

announements on U.S. Government bond rate level and

volatility

Sukriye Tuysuz

∗

BETA-THEME

61 avenue de laforêt noire

67000 Strasbourg

Abstrat

This paperinvestigates theimpatof maroeonomiand monetarynews onU.S.

Government bond ratelevel and volatility. Speially, itheksif thesenews aet

dierentlyinterestratelevelandvolatilityduring"stable"and"unstable"periods. "Un-

stable"periodsorrespondtotheperiodsmarkedbyagreatunertaintyonGovernment

bondmarket. To dothis,rst we distinguishthe "stable" and "unstable" periods by

estimating interest rate dynamis with a markov swithing ARCH proess, proposed

byHamiltonand Susmel(1994). Theresultsof thisrstestimationsuggestthatU.S.

interestratevolatilityishigherduringperiodsofnanialrises,wartimeperiodsand

duringperiodsmarkedbyeonomiorpoliyinstability. Weuse theseresults toeval-

newswithanEGARCHmodel,proposedbyNelson(1991). Theresultsshowthatnews

announementsdonothaveimportantimpatoninterestratevolatilityduring"stable"

periods. Inontrast, theystronglyaetmarketvolatilityduring "unstable" periods.

Finally,wehek whetherpositiveandnegativenews announementsinuenedier-

entlybondratevolatilityduring"unstable" periods. Theresultssuggestthatnegative

newshave important eets onthebond marketvolatility omparedto the eetsof

positivenews.

JEL Classiation: E4;E5;G1

keywords: Newsannounements,Governmentbondrate,EGARCH,ARCHMarkov

Swithing,Eonomiinstability,Monetarypoliyinstability,Finanialrisis.

1 Introdution

Interestratevolatilityhasbeomeaninreasingonerntopoliymakersandnanialmar-

ketpartiipantsalike.Inreasedmarketvolatilityisassoiatedwithhigherunertaintyabout

marketoutlooks,whihalsoaets,amongotherthings,theabilityofmarketpartiipantsto

disernthemonetarypoliystane. Longterminterestratevolatilityaetsalsotheinvest-

ment deisionsand thus overall eonomi ativity. In addition, nanial market volatility

playsanimportantroleinunderstandinghownanialinstrumentsarepried.

Severalauthorshavefousedontheroleofmaroeonominewsasasoureofnanial

marketvolatilityandpartiularlyGovernmentbond market(FlemingandRemolona,1997,

1999;Jonesetal.,1998;LiandEngle,1998;Bollerslev,CaiandSong,2000;Balduzzi,Elton

andGreen,2001;Lee,2002). Forexample,EderingtonandLee(1993),Beker,Finnertyand

Kopeky(1996)andBalduzzi,EltonandGreen(1996)doumenttheimportaneofmaroe-

onomi announements asamajor soureof Bondmarket volatility. Most ofthe existing

andvolatilityinnanialmarkets(Jonesetal.,1998;LiandEngle,1998;Christiansen,2000;

GoeijandMarquering,2006). Alltheseresearherssupposeonstantthenanialmarketre-

sponsetomaroeonomiandmonetarynews. Inontrastwiththelassialapproah,some

authorsonsiderthatthereationofinterestratelevelsandvolatilitytomaroeonomiand

monetary newsis unstable. A largepartof these authors suppose that "good"and "bad"

newshavenotthesameimpatonnanialmarketvolatility(Morgan,1993;Thoma,1994;

Karras, 1996; Li and Engle, 1998; Christiansen, 2000; Kim et al., 2004). As for Chadha

and Nolan (2001), Clare and Courtenay (2001a,b), Lee (2002) and Tuysuz (2007a, b, ),

they suppose that market interest rate reationto news depends strongly to entral bank

transpareny and redibilitydegrees. Moreover, some papersshow that during periods of

highunertaintyabouteonomisituation,marketsoperatorsanreatstronglytomaroe-

onominews(Banerjee,1992;Bikhandanietal.,1992;MQueenandRoley,1993;Fleming

andRemolona,1997;Veronesi,1999).

Thepreviousempirial work onsiders either onlythe unertaintyrelated to monetary

poliy ortoeonomi situation. Inontrast to theexisting literaturethispapertakesinto

aountbothsouresofunertaintywhihgenerateunertaintyonnanialmarket. Inad-

dition,itonsidersothersouresofmarketunertainty,suhasnanialrises. Speially,

in ontrast withtheexisting papers, thispaperinvestigateswhetherthe eetsof maroe-

onomiandmonetarynewsoninterestratelevelandvolatilityaredierentduring"stable"

and "unstable" periods. "unstable" periods orrespond to the periods marked by a great

unertaintyonGovernmentbondmarket. These "unstable" periodsorrespondnotonlyto

periodsmarkedbyeonomiandmonetaryinstabilitybutalsotoperiodsmarkedbynanial

instability. Forthe present analysis, four daily U.S. Government bond interestrate series

(3, 5,7and10 yearrate)and severalmaroeonominewsare used. Maroeonominews

poliy. Interestrate dynamisare, rst, evaluatedwith amarkov-swithingARCHmodel,

proposed by Hamilton and Susmel (1994), in order to determine "stable" and "unstable"

periods. Usingtheresultsobtainedin thisrststage,interestratedynamis areevaluated

with anEGARCHmodel, proposedby Nelson(1991). This model enablesto takeinto a-

ountthe onditional heterosedastiityeet, asymmetri eets and have theadvantage

ofnothavingtoimposepositivelyrestritionsontheoeientsintheonditionalvolatility

equation. Moreover,wetestwhethernanialoperatorsreatdierentlytopositive("good")

andnegative("bad")maroeonominews. Speially,wetestwhether"good" and"badd"

newsaetdierentlymarketvolatility.

Thepaperproeedsasfollows. Setion2presentsthefatorsthatinuenethereation

of interest ratelevel and volatility to maroeonomiand monetary news. Setion 3gives

informationonthedatausedfortheanalysis. AfterpresentingindetailtheARCHmarkov-

swithingmodel,setion4disussestheresultsobtained. Setion5usestheresultsofsetion

4toevaluateinterestratelevelandvolatilityresponsetomaroeonomiandmonetarynews

usinganEGARCHmodel. Setion6analyzestheresults,andnally,setion7onludes.

2 Heterogeneity of interest rate response to eonomi

news

The literature on herd behavior and informational asades (Banerjee 1992, Bikhandani

and al. 1992)emphasises that what drives nanial market outomes is not so muh the

ourrene of news per se, but how this new information is proessed and interpreted by

marketpartiipants. Thesamenewsanhaveavastlydierenteetonmarketsdepending

on theonditionsof markets andmarket partiipants. Market unertainty anbe implied

2.1 The importane of the entral bank transpareny and redibil-

ity

Awidelyresearhedareaistheeetofannounements,andinpartiularofnewsonentral

bank target variables and of monetary poliy rate hanges, on the yield urve. Several

authors argue that theimpat of newsrelated to entral bank target variables oninterest

rate depends strongly on the redibility and transpareny of entral bank (Haldane and

Read,1999, 2000; Ellingsenand Söderström,2001; Chadhaand Nolan,2001; Gravelleand

Moessner,2001; Parent, 2003; Connolly and Kohler,2004; Tuysuz, 2007b,). If a entral

bank is fully transparentand redible, newson entral bank target variables should alone

suetoantiipatefuturehanges inmonetaryrate. Inthissituation,marketinterestrate

level should only reat to entral bank target variables news. As market operators an

auratlyantiipateentralbankratedeisions,thediusionofthesedeisionsonveysany

informationtomarketpartiipants.Thus,thediusionofthesedeisionsshouldnotinuene

interestrate leveland volatility. In ontrast,ifaentralbank isnotfully transparentand

redible then announements on entral bank target variables inuene interest rate level

andvolatility. Inaddition,inthelastsituationmarketoperatorsannotantiipateorretly

entralbankratehangesdeisions. Thus,theunexpetedpartofentralbankratehanges

inuenes interestrate level and volatility. In sum, the reationof interest rate level and

volatilitytomaroeonomiandmonetarynewsandtounexpetedentralbankratehanges

stronglydependsonthetransparenyandredibilityofentralbank. Consequentlyagreater

transpareny and/orredibility should aet interest rate response to entral bank target

variablesnewsandtounexpetedhangesinpoliyrate(SellonandWeiner,1996;Mullerand

Tuysuz,2007b,).

Furthermore,DemiralpandJorda(2002)andTuysuz(2007a)arguethatunertaintyre-

latedtomonetarypoliyismoregreateraroundtheturningpointofmonetarypoliystane.

Forexample,aordingtoDemiralpandJorda(2002),whenmarketpartiipanthavenoidea

aboutthe nature onthemonetarypoliy stanearoundtheturning point, announements

tendtohavethelargesteetonmoneymarkets. Theauthorsprovideevidenethatmarket

response to monetarypoliy deisionsis markedlystrongerwhen these deisionsintrodue

a diretional hange in monetary poliy. Tuysuz (2007a) onrms a similar result on the

volatilityofinterestrateforUS,UK,GermainandFrenhdata. Preisely,theauthorshows

that interestratevolatilityisgreaterduringperiodsmarkedbyhigh unertaintyaboutthe

future deisions of the entral bank. These periods often orrespond to the period when

entral bankhangethediretionofhismonetarypoliy.

2.2 The role of the eonomi situation

Marketresponse tomaroeonominewsreleases stronglydepends uponthemomentum of

thebusinessyle(MQueenandRoley,1993;GariaandShaller,1995;Weise,Flemingand

Remolona,1997;1999;Veronesi,1999;Balduzzi etal., 2001;Andersenetal., 2004;Veredas,

2005). For instane, by ontrollingthe eonomi yle 1

, Fleming and Remolona nd that

durable goods orders,GDP, housingstarts andunemploymentannounementshad amore

signiant impat upon Government bond priesand trading volumes one the eonomi

yle had been aountedfor. In a similar vein, Veredas nd that bad news do nothave

the same impat on the bonds pries during expansion and reession periods. Contrary

1

Flemingand Remolona(1997)ontrolledfor theeonomiylebyusingeitherameasure ofimplied

volatility,ortheexpetedhangeintheFEDfundsrateasaproxyformarketonditions.

inuene the reationbond and exhange markets to real-time U.S. maroeonominews.

However,theauthorsndthatequitymarketsreatdierentlytothesamemaroeonomi

newsdependingonthestateoftheeonomy,withbadnewshavingapositiveimpatduring

expansions and havingnegative impat during reessions. Similarly, MQueen and Roley

ndthatbylassifyingeonomiativityasbeingeither"high","medium"or"low"relative

to trend,it waseasiertoidentify reations totheU.S.stokmarket toUS maroeonomi

announements. Finally,Veronesishowtheoretiallythatwheninvestorsassignhighproba-

bilitytothegoodstateofeonomythentheprieredutionduetobadnewsisgreaterthat

theredutioninexpetedfuturedividends. Similarly,wheninvestorsassignhighprobability

tothebadstateofeonomythentheinreaseintheprie,impliedbyagoodnews,islower

that theinreaseinexpetedfuturedividends.

Onthevolatilitylevel,ChadhaandNolan(2001)showthatEnglishinterestratevolatility

seemstobelowestduringthelate1980sboominU.K.eonomy. Inotherworld,theauthors

suggestthatinterestratevolatilityishigherduringreession. Thisoinidenesuggeststhat

highervolatilityanbeexplainedbyunertaintyabouteonomisituation. Inthesameway,

Tuysuz (2007a) shows that interest rates are more volatile around business yle turning

points. Moregenerally,investorstendtobemoreunertainaboutthefuturegrowthrateof

the eonomy during reessions 2

therebythese behaviorsanpartlyjustify highervolatility

of nanial market. Contrary to nanial seurities pries levels, few authors analyzethe

eets ofnewsonmarketvolatilitybydistinguishingeonomystate.

2

AuthorsasVeronesi(1999)showsthateonomists'foreastsaboutfuturerealoutputaremoredispersed

whentheeonomyisontrating.

Inthe literature,generallyauthors analyzediretly thedynami of seuritieswithout on-

sidering maroeonomiand monetary news (Edwards, 1998, 2000; Park and Song, 1999;

Edwards and Susmel, 2000; Bekaert et al., 2002; Baur, 2003; Alper and Yilmaz, 2004;

Fernandez-IzquierdoandLafuente,2004; Honet al.,2005;Tuysuz,2007a). All theauthors

ndthat during nanialrisesperiods nanialoperatorsunertaintyareveryhigherand

marketsvolatilityare alsoveryimportant. A largepartof thisvolatilityanbeexplained

by unertainty aboutnanial market evolutionand then bynanial transation. By in-

uening nanial markets, nanial rises aet also domesti and foreign eonomi and

monetarysituation. Theeetsoneonomiativityrestsmainly ontheeetsofnanial

rises onexhangemarketand thenontrade. Inaddition,variationsofGovernmentbonds

pries(rates)inueneinvestmenthoieandtherebyeonomiativity. Havingonsiene

oftheseeets,themarketoperatorsrevisetheirexpetationsaboutfutureevolutionofthe

eonomiativityandaboutthefutureondutofmonetarypoliy. However,duringperiods

ofnanialrisestheserevisionsanbeveryheterogeneousandpartiularlyifentralbankis

notfullytransparentand/orredible. Thus,duringnanialrisesthegreatunertaintyon

nanialmarketand thesuddenand importantrevisionsofagents'expetations anaet

the inuene of maroeonomiand monetary newson seuritydynamis. This hange of

theeetsdependsontheeonomisituation before therisisandonthetransparenyand

redibilityofentralbank.

3 Data Desription and Preliminary Tests

Thissetionpresentsthedatasetanditsstatistialproperties. Theempirialpartusesdata

series on interest rates, maroeonomi announements and unexpeted variations of key

3.1 Interest rate series

Governmentbond rateorrespondingto maturitiesof respetively

3

^,

5

^,

7

^and

10

^yearsare

onsidered in this study. These series overthe period rangingfrom therst ofJuly

1990

toJuly,

30 ^th

^,

2004

^{. Thisdataorrespondstothequotesatloaltimemarketlosure: 17:30}

EasternStandardTime(EST).

In order to determine the order of integration of these series we arry out a series of

unit-root tests. Three dierentkinds ofunit-root tests are performed: thestandard ADF

test, theZivot and Andrews (1992)test and nally the Seo (1999)test. Aordingto the

resultsoftheADFtest,displayedintable7,weannotrejetthenullhypothesisofunitroot

foranyofthefourseries. TheseresultsareonrmedfortheZivotandAndrewstestaswell

astheSeotest. TheSeostatistiallowstoaountforstruturalhangesintheserieswhile

the former aounts forthe presene of onditional heteroskedastiity. Indeed,using Box-

Piere, Ljung-BoxandLM statistis(see Table8), thenullhypothesisof homoskedastiity

isrejetedatthe

5%

^{levelforallassetsonsideredinourstudy. Thus,allinterestrateseries}

present a unit root and interest rates dierentials will be used in the empirial analysis.

Theseinterestrateseriesarealsoonditionallyheterosedasti.

3.2 Announements and surprises

Aording to Balduzzi et al. (1997), it is notthe announement per se that is important,

but rathertheinformationitonveystothemarketpartiipants. Indeed,ifannounements

onlyomfortagentsintheirexpetationstheywillnotindueanybehavioralhanges. Sine

the aim of this paper is to study the eet of announementson thedynamis of interest

rates, series that reet unantiipated variations forthe relevant series areneeded. These

thevaluesthatwereantiipated. Asantiipationsannotbeobserveddiretlysomeapprox-

imation areneeded. Asolution suggestsby Balduzzi et al.(1999)is to hoose thesurveys

published byMoney Market Servie (MMS) for US maroeonomi announements. This

organizationolletseveryFridayforeastsfrom apanelofmarketpartiipantsfor thefol-

lowingweekannounements. Medianvaluesforeahvariablewereomputed. Thosevalues

wereretainedasproxiesofmarket partiipantexpetations.

Inmoredetail,these variablesorrespondtopossibletargetsforentral banks. That is,

primarily,newsonerningtheinationrateandtheglobalhealthoftheeonomiesonsid-

ered. The onsidered announements onern unemployment(UE), onsumer prie index

(CPI), prodution prie index (PPI), gross domesti produt (GDP), balane of payment

(BP) andretailsales(RET).These variablesareannounedaround9:00a.m. .

Twomethodshavebeenusedintheliteraturefortheomputationoftheunexpetedpart

of monetarypoliy deisions. The rstmethod usessurveysformaroeonomiannoune-

mentsaspreviouslydisussed. Thealternativeapproximatesentralbankdeisionsthrough

arefully hosen asset quotations. More preisely, the methodology proposed by Kuttner

(2001)suggeststhat FED future fund priesonstituteasuitableproxyfor FED expeted

ations. Thislattersolutionispreferabletothe surveyssine,aspointedbyEhrmannand

Fratzher (2003), (2005a), the weekly frequeny of surveys prevents from taking into a-

ount most reent expetations. On the other hand, asset pries used in this study are

those from the day preeding entral bank deisions. Pries of future ontrats on FED

funds are areasonablehoie astheymeet therequirementsput forwardbyBrookeet al.

(2000), namely (i) its maturity is lose to that of the key interest rate, (ii) it is a liquid

assetand (iii) itsmaturityis shorterthanthe timeintervalbetweenFederal Open Market

Committee (FOMC)meetings. Moreover,asshown byKruegerandKuttner (1996),future

areunorrelatedwiththeothervariablesobservedattheontrat'spriingtime. Following

Kuttner's methodology,weextrattheunexpetedpartof monetaryauthorities'deisions,

onsideringthatthisunexpetedomponentisreetedbythedierenebetweenthefuture

priesontheannounementdayandthedaybefore. Morepreisely,therelationshipbetween

theforeasterror

(∆r ^∗ t ^,na )

^{andthefuture ontratratesanbewrittenasfollows:}

∆r ^∗ t ^,na = T

T − τ (f t − f t − 1 ),

⁽¹⁾

where

f

^{denotes interestrateonthefutureontrat,}

T

^{isthenumberofdaysinthemonth}

under onsiderationand

τ

^{isthedayofthemonth.}

4 Evaluation of the "stable" and "unstable" periods

OneofthemostinterestingaspetsofGovernmentbondratevariationisthatthosevariations

hanges widely aross time. More preisely, gures 5 through 8, in appendix, show that

duringsomeperiodsinterestratevariationsareveryhighandlowduringanotherperiods. In

addition,theseinterestratevariationstendtobepersistentgivingrisetothewelldoumented

volatilitylusteringand"GARCH-type" behaviorofreturn 3

. Inorderto takeinto aount

theheterosedastiityeet andthehangeofinterestratevolatilitydynami, interestrate

dynamis areevaluated witha markov-swithingARCH model proposed byHamilton and

Susmel (1994). This model enables to determine the periods of "high" (resp. "slow")

interestratevolatilityandthenperiodsmarkedbygreatunertaintyonbondmarket. After

presentingthemarkov-swithingARCHmodel,wewill presentanddisuss theresultsand

thendeterminethesouresofunertaintywhihgenerateunertaintyonGovernmentbond

market.

3

SeeBollerslevetal.(1992)foranexellentsurveyoftheliterature.

Hamilton andSusmel(1994)modifytheARCH proessesproposed byEngle(1982)to a-

ount for several strutural hanges in data and propose a Swithing ARCH (SWARCH)

model. TheAR-SWARCHmodelanbewrittenasfollows:

∆r t = a + b∆r t − 1 + ǫ t ,

⁽²⁾

ǫ t = √ g s t .u t , u t = p

h t .v t , h t = w +

X J

j=1

α j u ² t − j j = 1, 2, ..., J s t = 1, 2, ..., K.

Where

∆r t

^{representsthe}rst-dierenedinterestrate. Theinnovations

ǫ t

^areomposed

bytwoelements,whihare

g s t

^and

u t

^.

u t

^{isalsoomposed bytwoomponents:}

h t

^and

v t

^.

Theonditionalvolatility,

h t

^{, issupposed drivebyaARCH modelwith}

j

^{order. Theinno-}

vations

v t

^{followaGaussianorStudent}

t

distribution. Asfor

g s t

^{,theyaresaleparameters}

that apturethehangeinregime. Oneofthe

g

^{'sisunidentiedand, hene,}

g 1

^{isset equal}

to 1. Thus,

g s 2

^{is supposed}

g s 2 > g s 1

^.

s t

^{denotesanunobservedrandomvariable thatan}

values1,2,...,kandisassumedtobegovernedbyarstorderMarkovhain withtransition

probability,

p i,j

^{. Forexample,}

k = 2

^,

p i,j

^{, thetransition} probability from state

i

^{, at time}

t − 1

^{to state}

j

^{at time}

t

^isdenedas:

p(s t = 1 | s t − 1 = 1) = p 11 ,

p(s t = 2 | s t − 1 = 1) = p 12 ,

p(s t = 1 | s t − 1 = 2) = p 21 ,

p(s t = 2 | s t − 1 = 2) = p 22 ,

with

p 11 + p 12 = p 21 + p 22 = 1

^.

Underthisspeiation,thetransitionprobabilities,the

p ij

^{'s,areonstant. Forexample,}

ifinterestratewasinahighvolatilitystatelastperiod(

s t − 1 = 2

^),theprobabilityofhanging tothelowvolatilitystate(

s t = 1

^{)isaxedonstant}

p 21

^.

AsabyprodutoftheMaximumlikelihoodestimation, itispossibletomakeinferenes

about partiular state of the seurity at any date. For this the "lter probabilities" or

the"smoothprobabilities" anbeused. The"lter probabilities",

p(s t , s t − 1 | r t , r t − 1 , ..., r 1

^,

denote theonditional probability thatthe stateatdate tis

s t

^{and that atdate}

t − 1

^was

s t − 1

^{. These}probabilitiesareonditionalonthevaluesoftheobservedinterestratethrough date t. As for"smoothprobabilities",

p(s t | r T , r T − 1 , ..., r 1

^{, areinferenesaboutthestateat}

datetbasedondataavailablethroughsomefuturedate T(endofsample).

Giventheunit-roottestinsetion2,rst-dierenedinterestratedynamisareevaluated

with the model desribed in equation 2. The evaluated "smooth probabilities" that the

volatilityisintheseondstate(highvolatilitystate)areillustratedbythegures1through

4. Asummaryofourndingsontheextentandthedurationof"high" interestratevolatility

during theperiodonsideredisgiveninthetable1.

[InsertTable1here℄

[InsertFigure1here℄

[InsertFigure2here℄

[InsertFigure3here℄

[InsertFigure4here℄

The omparison of the periods of "high" volatility (see table 1) with the monetary and

nanial situation aswell astheeonomi and politial environment,we notie that these

periodsof"high"volatilityoinidewiththeperiodsmarkedbyunertaintyontheeonomi

and/ormonetaryand/ornanialinstability.

The1990swasmarkedbyseveralnanialrisessuhastheSMErisis(September1992

and August 1993), theU.S. Governmentbond market risis (January1994), the Mexian

risis(Deember1994), theAsian risis(July 1997),theRussian risis(August 1998),the

Bresilianrisis(February1999),theArgentinerisis(November2001)andtheburstingofthe

tehnologyandinternetbubblein 2002inUSA.Figures 1through4andtable 1showthat

interestratevolatilitywasinthe"high"stateduringperiodsorrespondingtothoseperiods

overingtherst SME risis, theU.S. Government bond market risis, theRussian risis,

theArgentinarisisandtheburstingofthetehnologyandinternetbubblein2002. These

oinidenessuggestthat theinreasein interestratevolatilityduringthese periodsanbe

explainedbyunertaintyimpliedbytheserises. Inaddition,aordingtotheseresultsthere

wasafairly rapidtransmission of respetively British, Mexian, Asian, Russian, Bresilian

andArgentinenanialinstabilitytoU.S.nanialmarket.

Asgures1thought4showU.S.interestratevolatilityshiftstothe"high" stateinlate

September2001. ThisdateorrespondstotheattakinUSAonSeptember11th2001. This

eventaroseunertaintyonnanial markets in variousountries andin partiular onU.S.

markets. Figures1through4andtable 1suggestthatU.S. interestratevolatilitywereon

"high"statealsoduringtheGulfWarwhihbeganonAugust2,1990. TheinvasionofKuwait

by the Iraquian army provoked important reation of all UN members and in partiular

USA.Thisreationandtheinreaseofoilprieshaveontributedtotheunertaintyinthe

beginningfrom September1990. Thisdateoinides withthedate whenU.S.interestrate

volatilityshiftsto"low" state(seegures1through4andtable1). Thisoinidenesuggests

that thehigh interestrate volatilityobservedbetweenAugustand September1990 anbe

explainedbytheunertaintyimpliedbytheGulfwarandtheinreaseoftheoilprie. The

stabilityontheoilmarketandtherelativelypeaefulperiodlastedonlyuntilJanuary1991.

The internationalinterventionin January1991 leadto thewithdrawalof Iraqifores from

Kuwaitwhihresultedinanimportantinreaseinoilpriesduringthisperiod. Theseevents

generatedunertaintyonthenanialmarket. Ourresultssuggestthatthisunertaintywas

lessimportantthantheunertaintyobservedduringtheAugustandSeptember1990. Indeed,

onlythe10yearinterestratevolatilitywason"high" stateduringJanuary1991.

Inaddition, during periods marked by eonomi and monetary poliy unertaintyU.S

interest rate volatility in all series was on the "high" state (see gures 1 through 4 and

table 1). These periods overtherst quarterof 1992, the period from Februaryto Mars

1993,theseondandthird quarterof1995,theperiodbetweenFebruaryandAugust1996,

rst half of 1999 aswell asthe rst and seond quarter of 2000. All of these periods are

markedwithunertaintyaboutthefuturedeisionsoftheentralbank. Forinstane,during

therstandtheseondquarterof1995,eonomiandnanialagentsestimated thatU.S.

eonomy was going through a reession. Hene, they antiipated a hange of the FED

poliy. Contrarytotheexpetations,FEDdidnothangeitsrateduringthisperiodwhih,

in turn, induedunertaintyonthe nanialmarket,partiularly in theseond quarter of

1995. The FED deided to derease its rate only in July 1995. This deision eliminated

theunertaintyaboutthemonetarypoliy. Inontrastwiththeprevioussituation,in1996

theunertaintywasabouttheinationrateandtheFEDdeisions. Morepreisely,during

therstquarterof1996,theobservedU.S.eonomigrowthwasgreaterthantheexpeted

nanial agentsantiipated an ination risk hene ahange in the Fed's monetary poliy

orientation. However,fromJanuarytosummer1996,FEDdidnothangeitsrate. Thefat

that theexpetations ofaninreaseinFED's rateisnotfullledleadtohigherunertainty

on nanial market. This situation persisted until summer 1996, theperiod during whih

theGovernoroftheFEDarmedhisonvitionabouttheabseneofeonomioverheating

in theUnited States. Inaddition, AlanGreenspan delared thatthe evolutionof priesin

USAwasperfetlyontrolledandthatinaseofaninationrisktheFOMCwouldintervene

quikly. Theseremarkshelpedredue unertaintyaboutU.S.inationandmonetarypoliy

deisions. Insum,inationaryriskandtheunertaintyabouttheFED'sfuturedeisionare

themainfatorswhihanexplaintheriseofU.S.interestratevolatility,observedingures

1through4,betweenFebruarytoSeptember1996.

Finally, interestratewasrelativelyhighduring periods markednotonlyby unertainty

about the eonomi, monetary and nanial situation but also by instability on the ex-

hange ratemarket. For instane, during the rst half of 2001 the dollarappreiated too

muhagainsttheeuro andtheyen. This eventaeted negativelytheU.S.eonomiom-

petitiveness. Inaddition,thestrongvariationsoftheexhangeratesinueneddiretlythe

portfolio returns and hene reated unertainty on nanial markets. The instability on

exhange ratemarket fell stronglyon April2001. This fallredued therisk relatedto the

U.S. eonomy and the unertainty on nanial markets. In sum, the strong appreiation

of the dollar againstthe main urrenies and the greater instability on the exhange rate

marketanexplainunertaintyonnanialmarketandthegreatervolatilityoftheinterest

rateduringthersthalfof2001,observedinthegures1through4.

ble" and "unstable" periods.

In this setion, we will hek whether interest rate level and volatility respond dierently

tomaroeonomiandmonetarynewsduring"stable" and"unstable" periods. Forthis,an

AR-EGARCHmodel, proposedbyNelson(1991),isused.

5.1 Model

Giventheunit-root testin setion 2,therst-dierenedinterestrate responseto maroe-

onomiandmonetarynewsismodeledasfollows:

∆R t = a + b∆R t − 1 + c∆r ^∗ t + X K

k=1

d k D k,t ^a

+ c 1 ∆r ^∗ _t ∗ Dum ^R + X K

k=1

d k,1 D ^a _k,t ∗ Dum ^R + ǫ t ,

⁽³⁾

where

R t

^{denotes interestrate}dierentialsin period

t

^.

∆r _τ ^∗

^and

D _k,t ^a , k = 1, . . . , K

^{, orre-}

spondrespetivelyto theunexpetedpartofthemonetarypoliy ratehangesandasetof

maroeonominews.

c

^and

d k

^{measuretheeetsofthosenewsoninterestratelevelduring}

"stable" periods. During"unstable" periods,theseeetsaremeasuredby

c 1

^and

d k,1

^{. The}

dummy variable (

Dum ^R

^{) takethevalue 1during} "unstable" periods and 0otherwise. As maroeonominews areannouned around9:00 a.m. and monetary poliy rate deisions

arediusedaround2:30p.m.,Governmentbondratesinperiod

t

^{respondtomaroeonomi}

newsandmonetarypoliy deisionsimmediatelyonthedayofannounements(period

t

^).

Theterm

ǫ t

^{orrespondstotheinnovationseries. Severalauthors estimateequation(3)}

supposing that the innovations are a Gaussian white noise (Balduzzi et al., 1999; Bern-

hardsen,2000; EllingsenandSöderström,2001;Favero,2001;Kearney,2001;Caporaleand

appliedtohekwhethertheinnovations

ǫ t

^areonditionallyhomosedasti.Table9,inthe Appendix, enablestorejet thenullhypothesisand thenaeptthehypothesisthat thein-

terestratesvolatilityisonditionallyheterosedasti. SineBollerslevproposedtheGARCH

modelsin 1986,numerous authorsused suh model totakeinto aountthepersistenein

onditional varianesof nanialmarket. In aGARCH model, an unantiipateddrop and

an unantiipated rise in the same magnitude in an interest rate are assumed to generate

thesameimpaton itsfuture volatility. However,authors likeKimand Sheen(2000),Lee

(2002) andEhrmann and Fratzsher(2002, 2003, 2005)), argue that thesize and thesign

oftheshoksinuenedierentlythefuture nanialmarketvolatility. Ontheotherhand,

DeGoijandMarquering(2006)ndthatasymmetrivolatilityintheTreasurybondmarket

an largely be explained by maroeonomi announement news. This suggests that the

asymmetri volatilitynd in governmentbond markets is likely due to misspeiation of

thevolatilitymodel. Indeed,afterhavinginludedmaroeonomiannounementsintotheir

model,theynotiethattheasymmetrydisappears. Inordertotakeintoaounttheondi-

tional heterosedastiy eet andto hektheasymmetri eet,the exponential GARCH

(EGARCH)approahofNelson(1991)wasappliedtoestimatetheeetofmaroeonomi

andmonetarynewsontheonditionalvarianesoftheinterestrates. Oneoftheadvantages

oftheEGARCHmodelisthenonimposition ofpositivelyrestritionsontheoeientsin

theonditionalvarianeequation. This modelanbeexpressedas:

ln(h t ) = w + α ǫ t − 1

p h t − 1

+ βln(h t − 1 ) + θ( | ǫ t − 1

p h t − 1

| − p 2/π)

+ γDum r ^∗ _τ + X K

k=1

ϕ k Dum ^a _k,t

+ γ 1 Dum r _τ ^∗ ∗ Dum ^R + X K

k=1

ϕ k,1 Dum ^a _k,t ∗ Dum ^R .

⁽⁴⁾

Theterm

α

^{reetsdierentimpatsofpositiveandnegative}innovationsononditional varianes. Apositive(resp. negative)

α

^{estimateimpliesthatapositiveinnovationinreases}

volatilitymore(resp. less)thananegative(resp. positive)innovationofanequalmagnitude.

Theterm

θ

^{determinesthesizeeet. Asinthemeanequation(3),wetakeintoaountthe}

inuene ofmaroeonomiand poliy variables. Contraryto thelevelequation, dummies

areusedinsteadofatualnewsinordertoavoidmultiollinearitywiththeonditionalmean

regressors.

Assumingthat

c 1 = d k,1 = γ 1 = ϕ k,1 = 0

^,

k = K

^{givesthelassialbenhmarkmodel.}

In this lassial model, interest rate level and volatility response to maroeonomi and

monetary newsisonstantoverthe whole sampleretained in thepaper. Inorder to hek

ifthis responseis dierentbetween"stable" and "unstable" periods interestratedynamis

areevaluatedwiththemodeldesribedbytheequations3and4.

5.2 Empirial results

Aording to table 3, U.S.interestrates are mainly sensitiveto theonsumer prie index

(

CP I

^{) news andto the unexpeted part of theFED deisions(}

d CP I

^and

c

^{). These news}

haveapositiveimpaton Governmentbondsrates. This isin aordanewith theoretial

expetanies. Indeed, theonsumerprieindex an serveasaproxyfortheination level.

Thus,apositivesurpriseorrespondstoanunderestimationoftheinationlevelandmarket

investorswillrevisetheirexpetationsaboutFED'smonetarypoliy. AsforFEDdeisions,

our results show that an inrease in unexpeted entral bank rate hanges evokesan im-

mediate inrease in market interest rates and vie versa. This positive eet has already

beenshown by empirialstudiessuhasCookand Hahn(1989),Kuttner (2001),Kim and

Sheen (2000)orLee (2002). Cook and Hahn are therst to establishapositiveempirial

supporttheexpetations theoryofthetermstruture .

Conerning the asymmetri response of interest rate, interest rates volatility respond

dierentlyto newsduring "stable" and"unstable" periods. Speially, table 4showsthat

during"normal"("stable")periodsmaroeonomiandmonetarynewsannounementshave

nearly no inuene on interest rates volatility. Note that only the balane of payment

announementdaysinueneGovernmentbondratevolatility(

γ bp

^{). Ontheontrary,during}

"unstable" periodstheeetsofthesenewsannounementsonvolatilityisquiteimportant.

Indeed, during "unstable" periods bond rate volatility augment the day FED deisions,

unemployment rate, grossdomesti produt and balane of payment news are announed

(

γ r ^∗ ,1

^,

γ U E,1

^,

γ bp,1

^and

γ gdp,1

^{). Inontrast,regardingthelevel,theresultsshowthatinterest}

ratelevelresponsetomaroeonomiandmonetarynewsdoesnotdiersigniantlyaross

"stable" and"unstable" periods.

[InsertTable2here℄

[InsertTable3here℄

[InsertTable4here℄

Thefat that newsannounementshave littleimpat oninterest rate volatilityduring

thestable" periodsanbeexplainedmainlybytwofators. First,whenentralbankisfully

transparent and redible maroeonomi and monetary news announements do not gen-

erateunertaintyonnanialmarketand henedonotinuene interestratevolatility, as

pointedoutbyChadhaandNolan(2001),ClareandCourtenay(2001a,b)andTuysuz(2006,

2007a,b,). Followingtheirapproah,ourresultssuggestthatFEDis fullytransparentand

4

Theexpetationstheorysaysthatalongterminterestrateshouldbeequaltotheaverageoftheshort

terminterestratesover thesameperiodoftimeplusatermpremium;thus,aninreaseintherstouple

ofshortrateshoulddriveupthelongrateinalesserextent.

degreeofFEDinreasessine1994. Indeed,beginningthisdatetheU.S.FederalReservehas

startedtopublilyannouneFOMCpoliyhanges. Inasimilarvein,after1999,pressstate-

mentsannouningpoliydeisionsoergreaterdetailonallpoliydeisions,andourafter

everymeeting. Inaddition,sineMay1999thepoliybiashasbeenannounedimmediately

after eah FOMCmeeting makingitaneetiveforward-lookingsignal. InFebruary2000,

Fed moved away from the poliy bias terminology and instead inserted aformulai "bal-

ane of risks" sentene in order to larify its asymmetri diretives regarding inationary

pressuresand eonomiweaknesses. Finally,in Marh2002, theFOMCstarted to publish

a roll all of the votes on the Federal Funds target, inluding the preferred poliy hoie

of anydissenters. Evenall thesetransparenymeasures donotinduefull transparenyof

FED. Indeed, Diner and Eihengreen (2007) nd that in 2005 FED transparenydegree

wasabout61%.

Theseond explanationrestsonthespeedofassimilationof thenewsbynanialmar-

ket and then by interest ratedynami. Several authors nda signiant inreasein bond

volatilityas soonasthenewsarereleased(Ederington andLee,1993; CrainandLee,1995;

Andersenand Bollerslev,1997; FlemingandRemolona,1997;Jonesetal., 1998). However,

thisinreasedoesnotpersist,asthenewsareimmediatelyinorporatedinthepries. Forin-

stane,DeGoeijandMarquering(2006)ndthatbondmarketinorporatestheimpliations

of maroeonomiannounementnews faster than any other information. As for Fleming

and Remolona (1997),theynd that U.S. Governmentbond ratevolatility risesharply as

soonasU.S.maroeonominewsarereleasedandremain relativelyatfortherestofthe

day. Preisely,these authors notiethat U.S.interestratevolatilityrisearound8.30(time

whenertainU.S.maroeonominewsarereleased)andremainatafterward. Theresults

obtained by Ederington and Lee and Fleming and Remolona indiate that most of bond

The third observation onerns interest rate volatility. Table 4 showsthat both mag-

nitude (or size) and signeets ofthe onditional (or standardized)shokson onditional

varianearesigniant. Namely,thesizeeetsonintermediate-terminterestratevolatility

are signiant (

θ

^{). Asfor the signeets, our resultssuggestthat medium and longterm}

interestratevolatilityreatdierentlytopositiveandnegativestandardizedshoks(

α

^{). The}

eet oftheabsolutevalueofthestandardizedshoksoninterestratevolatilityispositive.

Inontrast,interestratevolatilityreatpositively(negatively) to negative(positive) stan-

dardizedshoks. Thesign ofthese size andsign eets oninterestrate volatilityis in line

withtheoretialexpetanieswhereastheyontradittheresultsofDeGoeijandMarquer-

ing(2006). Theseauthorsnotethatasymmetri volatilityin theTreasurybondmarketan

belargelyexplainedbymaroeonomiannounementshoks.

Finally,resultsobtainedfromthebenhmarkmodel(seetable2)tothemodeldesribed

in equations3and4(seetables 3and 4)are ompared. Aordingto table2,interestrate

volatilityisinuenedbytheannounementsofunemployment,onsumerprieindex,gross

domestiprodutandretailsalesaswellasFEDdeisionsnews(

γ r ^∗

^,

γ U E

^,

γ CP I

^,

γ GDP

^and

γ RET

^{). However,when we} distinguishbetween "stable" and "unstable" periods, itan be seen that these news announement days have an impat on bond market volatility only

during "unstable" periods(seetable 4).

6 Do positive and negative news aet interest rate dif-

ferently?

Severalauthorsndthatpositiveandnegativenewsdonothavethesameimpatonthe-

nanialmarket(Morgan,1993;Thoma,1994;Karras,1996;LiandEngle,1998;Christiansen,

market for Treasury bond volatility while negative shoks inrease it. In ontrast, Chris-

tiansennd nodierene betweenpositiveand negativeannounementsshoksoninterest

ratevolatility. AsforClareandJohnson()?,theyndthat"good" newshasagreaterimpat

onthedeviationofshort terminterestratethan"bad" news. Existingstudiessupposethat

"bad" and"good" newshavethe sameeet onseurities market during thewhole period

retained. Contraryto these studies,this setioninvestigateswhether positiveandnegative

news havethe same eet on Governmentbond during "unstable" periods. Theprevious

setionshowedthat newsannounementdaysinuenedmainlyinterestratevolatilityonly

during "unstable" periods withoutany signianteet during "stable" periods. A seond

resultwasthat interestrateslevelresponsetomaroeonomiandmonetarynewsdoesnot

hange aross"stable" and"unstable" periods. Using these results, wetest in this setion

whether positiveand negativenews announementshavethe sameimpaton interestrate

volatilityduring "unstable" periods.

6.1 Model

In order to hek whether positiveand negativenews announementsaet dierently in-

terestratevolatility, wemodeltherst-dierened interestratewithanAR-EGARCHap-

proah,proposed byNelson(1991). Themodelanbedesribedasfollows:

∆R t = a + b∆R t − 1 + c∆r _t ^∗ + X K

k=1

d k D ^a _k,t + ǫ t .

⁽⁵⁾

ln(h t ) = w + α ǫ t − 1

p h t − 1

+ βln(h t − 1 ) + θ( | ǫ t − 1

p h t − 1

| − p 2/π)

+ γ 1 ∆r _τ ^{∗ +} ∗ Dum ^R + X K

k=1

ϕ k,1 D ^a+ _k,t ∗ Dum ^R

+ γ 2 ∆r _τ ^∗− ∗ Dum ^R + X K

k=1

ϕ k,2 D ^a _k,t ⁻ ∗ Dum ^R .

⁽⁶⁾

Inontrastto themodeldesribedbytheequations3and4,in thismodelpositiveand

negativemaroeonomiandmonetarynews(

∆r ^∗ _τ ⁺

^,

D ^a+ _k,t

^,

∆r ^∗− _τ

^and

D ^a _k,t ⁻

^{)anaetinterest}

ratevolatilitydierentlyduring"unstable" periods(

Dum ^R

^).

Assumingthat

ϕ k,2 = γ 2 = 0

^{givesthemodeldesribedbyequations3and4.}

6.2 Empirial results

Weestimateinterestratedynamiswiththemodeldesribedbytheequations5and6. The

resultsaregivenintables 5and6. Inline withourpreviousresults,U.S.interestratelevel

responds mainly to the unantiipated partof the FED rate hanges and to theonsumer

prie index news (

c

^and

d CP I

^{). Similarly, during} "unstable" periods U.S. bond market volatilityismainlyaetedbyFEDdeisionsdiusiondaysandbytheannounementdays

ofunemploymentandgrossdomestiprodut(

γ r ^∗

^,

γ U E

^and

γ GDP

^). Furthermore,negative newsannounementdaysaetdierentlyinterestratevolatilityomparedtopositivenews

announement days. Negative news announements amplify interest rate volatility more

then positive newsannounements. Forinstane, thesize of thenegative (resp. positive)

unemploymentnewsannounementdaysonthe10yearsbondratevolatilityis4.187(resp.

2.504) (

γ U E,1

^and

γ U E,2

^{). Thisresultis in aordanewithour}expetations and withthe results obtainedby Morgan (1993),Thoma (1994), Karras(1996) and Kim et al. (2004).

Indeed,negativenewsmeansthatagentshaveunder-antiipatedthemaroeonomirelease.

announedvalue.

[InsertTable5here℄

[InsertTable6here℄

Conlusion

Inthispaper,weinvestigatewhetherU.S.interestratelevelandvolatilityreatsdierently

tomaroeonomiandmonetarynewsduring"stable" and"unstable" periods. Forthis,we

determine, rst, the"stable" and "unstable" periods by evaluating interest rate dynamis

with anARCH markovswithing modelproposed by HamiltonandSusmel(1994). Inthis

rst step, wend that U.S. interestrate volatility wason the"high" stateduring periods

ofnanialrises, theperiodsmarkedbyeonomiand monetaryinstabilityaswellaswar

timeperiods. Then,weassumethatinterestratelevelandvolatilityresponsetonewsduring

"stable" periodsand"unstable" periodsmaydier. Inthisseondstep,wemodeliseinterest

ratedynamiswithanEGARH(1,1)modelproposedbyNelson(1991). Theresultsobtained

in this seond stage showthat U.S nanialmarket volatility doesnot reatto maroeo-

nomi and monetary newsannounement days during "stable" periods. In ontrast, these

daysinuene signiantlyinterestrate volatility during "unstable" periods. Whenwedo

notmakethisdistintion between"stable" and "unstable" periodsand onsider alassial

approahweseethat U.S.interestratevolatilityreatsto announementdays. Finally,we

hekwhether"positive"and"negative"newsaetdierentlyinterestratevolatility. The

resultsobtainedsuggestthatthe eetof negativemaroeonomiandmonetarynewsan-

nounementdaysontheU.S.bondratevolatilityishigherthanpositivenewsannounement

[InsertTable7here℄

[InsertTable8here℄

[InsertTable9here℄

[InsertFigure5here℄

[InsertFigure6here℄

[InsertFigure7here℄

[InsertFigure8here℄

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responsetou.s.news',MPRAPaper(5217).

Tuysuz, S. (2007b),`The eets ofa greaterentral bankredibility oninterest rateslevel

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Tuysuz,S.(2007),`Evaluationdeladynamique destauxd'intérêtàl'aunedesbouleverse-

mentsdusystèmeéonomique, monétaireet nanier',Thèse Univesité Louis Pasteur

.

Urih,T.andWahtel,P.(2001),`Finanialmarketresponsestomonetarypoliyhangein

the1990s', Contemporary Eonomi Poliy19(3),254267.

Veredas, D. (2005), `Maroeonomi surprises and short term behavior in bond futures',

Empirial Eonomis 30.

Veronesi, P. (1999), `Stok market overreation to bad news in good times: A rational

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Weise,C. L.(1999),`Theasymetri eetsof monetarypoliy: A nonlinearvetorautore-

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Zivot,E.andAndrews, D.(1992),`Furtherevideneonthegreatrash,theoil-prieshok,

andunit-roothypothesis',JournalofBusinessandEonomiStatistis10(3),251270.

3-yearb ond 5-yearb ond 7-yearb ond 10-yearb ond

08/01/1990-31/08/1990 08/01/1990-11/09/1990 08/01/1990-26/03/1990 08/01/1990-17/05/1990

27/07/1990-03/09/1990 19/07/1990-21/01/1991

06/01/1992-07/04/1993 23/12/1991-08/04/1993 01/01/1992-25/03/1992 23/12/1991-27/03/1992

31/07/1992-26/11/1992 11/08/1992-23/11/1992

04/02/1993-05/04/1993 10/02/1993-07/04/1993

24/02/1994-23/09/1994 28/01/1994-23/09/1994 08/02/1994-01/09/1994 31/01/1994-14/09/1994

21/10/1994-05/09/1995 21/10/1994-20/09/1995 02/05/1995-15/08/1995 04/05/1995-17/08/1995

13/02/1996-24/09/1996 14/02/1996-14/10/1996 15/02/1996-15/08/1996 12/02/1996-20/09/1996

26/08/1998-20/08/1999 31/08/1998-12/10/1999 10/09/1998-12/10/1999 08/09/1998-12/10/1999

03/01/2000-08/06/2000 04/01/2000-02/06/2000 31/12/1999-09/06/2000

01/12/2000- 05/12/2000- 12/12/2000-18/05/2001 06/12/2000-25/05/2001

28/08/2001-20/03/2002 10/08/2001-22/03/2002

10/05/2002- 10/05/2002-

3-yearb ond 5-yearb ond 7-yearb ond 10-yearb ond

a

^{0,000 0,000 0,000 0,000}

(−0,28) (−0,27) (−0,41) (−0,44)

b

0,057

∗

0,059

∗

0,063

∗

0,056

∗

(3,50) (3,61) (3,76) (3,41)

c

0,244

∗

0,166

∗

0,117

∗∗

0,073

(3,64) (2,31) (1,73) (1,03)

dUE

^-0,120

∗

-0,100

∗∗

-0,082 -0,076

(−2,16) (−1,80) (−1,52) (−1,48)

dcpi

^0,131

∗

0,132

∗

0,118

∗

0,104

∗

(2,91) (2,76) (2,49) (2,24)

dppi

^{-0,021 -0,021 -0,020 -0,015}

(−1,24) (−1,22) (−1,18) (−0,89)

dgdp

^{0,011 0,011 0,007 0,006}

(0,95) (0,94) (0,67) (0,60)

dret

^0,030

∗

0,025

∗∗

0,022 0,021

(2,04) (1,71) (1,56) (1,56)

dbp

^{-0,002 -0,002 -0,001 -0,001}

(−0,66) (−0,81) (−0,41) (−0,57)

w

-5,437

∗

-5,364

∗

-5,107

∗

-5,140

∗

(−5,50) (−5,53) (−4,66) (−4,42)

θ

^{0,075 0,092}

∗∗

0,109

∗∗

0,033

(1,32) (1,67) (1,83) (0,58)

α

^{0,009 0,022 0,040 0,059}

∗∗

(0,28) (0,75) (1,23) (1,87)

β

0,058 0,072 0,124 0,121

(0,34) (0,43) (0,65) (0,61)

γr ∗

^0,703

∗

0,774

∗

0,733

∗

0,787

∗

(3,84) (3,67) (3,45) (3,22)

γUE

^1,134

∗

1,124

∗

1,037

∗

0,994

∗

(8,89) (8,83) (8,33) (7,37)

γcpi

^0,276

∗∗

0,258

∗

0,228

∗∗

0,251

∗

(1,91) (2,00) (1,89) (2,14)

γppi

^{-0,038 -0,008 0,035 0,095}

(−0,27) (−0,07) (0,25) (0,66)

γgdp

^0,445

∗

0,466

∗

0,459

∗

0,437

∗

(3,90) (4,21) (4,08) (3,78)

γret

^0,461

∗

0,463

∗

0,406

∗

0,297

∗

(3,14) (3,36) (2,89) (2,09)

γbp

^{-0,187 -0,139 -0,135 -0,133}

(−1,41) (−1,04) (−1,00) (−1,06)

*and**indiatethattheorresp ondingo eientisstatistiallysigniantatthe5%and10%,resp etively.

Thenumb ersin

(.)

arethet-statistis.

∆ Rt = a + b∆ Rt−1 + c∆r ∗ t + P K

k=1 dkD a k,t + ǫt

^,

ǫt−1 ǫt−1 p PK

35

3-yearb ond 5-yearb ond 7-yearb ond 10-yearb ond

a

-0,001 -0,001 -0,001 -0,001

(−0,96) (−1,08) (−1,31) (−1,01)

b

^0,062

∗

0,067

∗

0,075

∗

0,065

∗

(3,92) (4,18) (4,63) (4,16)

stableperiods

c

^0,284

∗

0,246

∗

0,226

∗

0,234

∗

(2,96) (2,65) (3,01) (3,41)

dUE

^{-0,038 -0,041 -0,079 -0,035}

(−0,54) (−0,56) (−1,21) (−0,56)

dcpi

^0,160

∗

0,274

∗

0,185

∗

0,164

∗

(2,68) (4,49) (3,55) (2,71)

dppi

^{0,020 0,020 0,019 0,026}

(1,09) (0,91) (0,90) (1,26)

dgdp

^{-0,001 0,003 -0,006 -0,008}

(−0,07) (0,27) (−0,58) (−0,75)

dret

^{0,009 0,004 0,031}

∗∗

0,014

(0,54) (0,27) (1,91) (0,96)

dbp

^{-0,004 -0,001 -0,001 0,001}

(−1,23) (−0,24) (−0,19) (0,40)

unstableperiods

c 1

^{0,019 -0,081 -0,228 -0,261}

∗∗

(0,13) (−0,48) (−1,21) (−1,68)

dUE,1

^{-0,119 -0,091 -0,029 -0,100}

(−1,17) (−0,89) (−0,27) (−0,99)

dcpi,1

^{-0,029 -0,182}

∗

-0,111 -0,105

(−0,34) (−2,09) (−1,21) (−1,19)

dppi,1

^-0,091

∗

-0,079

∗

-0,083

∗

-0,075

∗

(−2,93) (−2,45) (−2,36) (−2,27)

dgdp,1

^{0,025 0,013 0,032 0,029}

(1,23) (0,67) (1,57) (1,49)

dret,1

^{0,051 0,042 0,001 0,024}

(1,93) (1,62) (0,03) (0,87)

dbp,1

^{0,003 -0,002 0,000 -0,003}

(0,62) (−0,44) (−0,04) (−0,71)

*and**indiatethattheorresp ondingo eientisstatistiallysigniantatthe5%and10%,resp etively.

Thenumb ersin

(.)

^arethet-statistis.

∆ Rt = a + b∆ Rt−1 + c∆r ∗ t + PK

k=1 dkD a k,t + c 1∆ r ∗

t ∗ DumR + PK

k=1 dk,1 Da k,t ∗ DumR + ǫt

∗

w

^-1,039

∗

-1,234

∗

-1,106

∗

-1,211

∗

(−4,20) (−5,53) (−6,25) (−5,97)

θ

0,047

∗∗

0,050

∗∗

0,009 0,003

(1,84) (1,85) (0,38) (0,13)

α

^{-0,019 -0,035}

∗∗

-0,042

∗

-0,048

∗

(−0,97) (−1,73) (−2,26) (−2,51)

β

0,828

∗

0,794

∗

0,812

∗

0,796

∗

(19,57) (20,71) (25,69) (22,27)

stableperiods

γr ∗

^{0,234 -0,006 0,112 -0,039}

(1,06) (−0,03) (0,58) (−0,17)

γUE

^{0,024 0,182 0,174 0,182}

(0,12) (0,88) (1,08) (1,05)

γcpi

^{-0,256 -0,168 -0,185 -0,173}

(−1,31) (−0,78) (−1,12) (−0,93)

γppi

^{-0,264 -0,210 -0,195 -0,207}

(−1,29) (−0,95) (−1,09) (−1,12)

γgdp

^{-0,056 -0,228 -0,203 -0,226}

(−0,28) (−1,10) (−1,22) (−1,25)

γret

^{-0,062 -0,167 -0,002 -0,056}

(−0,27) (−0,71) (−0,01) (−0,31)

γbp

^-0,394

∗

-0,628

∗

-0,359

∗

-0,328

∗∗

(−2,27) (−2,89) (−2,20) (−1,88)

unstableperiods

γr ∗ ,1

^{0,216 0,611}

∗∗

0,565

∗

0,660

∗

(0,75) (1,86) (2,07) (2,27)

γUE,1

^0,743

∗

0,630

∗

0,654

∗

0,618

∗

(3,05) (2,60) (3,15) (2,80)

γcpi,1

^{0,403 0,300 0,343 0,393}

∗∗

(1,61) (1,17) (1,54) (1,66)

γppi,1

^{0,121 -0,013 0,018 0,137}

(0,42) (−0,05) (0,06) (0,49)

γgdp,1

^0,765

∗

0,774

∗

0,862

∗

0,812

∗

(3,31) (3,53) (4,62) (4,17)

γret,1

^{0,318 0,509}

∗∗

0,299 0,271

(1,03) (1,68) (1,00) (0,96)

γbp,1

^0,422

∗∗

0,738

∗

0,489

∗

0,379

∗∗

(1,86) (2,94) (2,36) (1,74)

*and**indiatethattheorresp ondingo eientisstatistiallysigniantatthe5%and10%,resp etively.

Thenumb ersin

(.)

arethet-statistis.

ln( ht ) = w + α q ǫt−1

ht−1 + βln( ht−1 ) + θ(| q ǫt−1 ht−1 | − p

2/π) + γDumr ∗ τ + P K

k=1 ϕkDum a k,t

37

3-yearb ond 5-yearb ond 7-yearb ond 10-yearb ond

a

-0,001 -0,001 -0,002

∗

-0,001

(−1,54) (−0,68) (−1,96) (−1,52)

b

^0,062

∗

0,064

∗

0,072

∗

0,064

∗

(3,83) (3,88) (4,25) (4,01)

c

0,318

∗

0,227

∗

0,208

∗

0,162

∗

(4,26) (3,10) (2,85) (2,41)

dUE

^{-0,078 -0,030 -0,086 -0,068}

(−1,53) (−0,55) (−1,61) (−1,37)

dcpi

^0,156

∗

0,185

∗

0,144

∗

0,126

∗

(3,66) (4,32) (3,29) (2,83)

dP P I

^{-0,013 -0,026 -0,016 -0,008}

(−0,79) (−1,53) (−0,98) (−0,52)

dGDP

^{0,006 0,001 0,001 0,000}

(0,62) (0,09) (0,11) (−0,05)

dRET

^0,028

∗

0,018 0,026

∗

0,018

(2,05) (1,37) (1,94) (1,43)

dbp

^{-0,002 -0,002 -0,001 -0,001}

(−1,05) (−1,03) (−0,50) (−0,44)

*and**indiatethattheorresp ondingo eientisstatistiallysigniantatthe5%and10%,resp etively.

Thenumb erin

(.)

^arethet-statistis.

∆ Rt = a + b∆ Rt−1 + c∆r ∗ t + PK

k=1 dkD a k,t + ǫt

^,

ln( ht ) = w + α q ǫt−1

ht−1 + βln( ht−1 ) + θ(| q ǫt−1 ht−1 | − p

2/π)

+γ 1 Dum + r ∗ τ

∗ DumR + PK

k=1 ϕk,1 Dum a+

k,t ∗ DumR + γ 2 Dum − r ∗ τ

∗ DumR + PK

k=1 ϕk,2 Dum a−

k,t ∗ DumR . r ∗

:entralbankrate,UE:unemployment;CPI:onsumerprieindex;PPI:pro duerprieindex;

GDP:grossdomestipro dut;BP:Balaneofpayment;RET:retailsales.