The impact of macroeconomic news sentiment on interest rates
Journal
International Review of Financial Analysis
ISSN
1057-5219
Type
journal article
Date Issued
2024
Author(s)
Abstract
We provide evidence that sentiment extracted from articles related to interest rates, inflation, and the labor market has the ability to explain short-term interest rate movements that cannot be accounted for by professionals’ and consumers’ expectations. Additionally, sentiment can pin down two short rate regimes that are correlated with the business cycle. By combining these results with a yield curve model, we find that market sentiment has a statistically significant negative effect on the short end of the yield curve and a positive effect on the slope. We also show that sentiment improves the out-of-sample forecast accuracy of short-term yields.
Language
English
Refereed
yes
Volume
94
Number
July 2024
Subject(s)
Contact Email Address
francesco.audrino@unisg.ch