Authors: Richard K. Crump and Nikolay Gospodinov
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Staff Reports
Deconstructing the Yield Curve
Number 884
April 2019 Revised January 2022
April 2019 Revised January 2022
JEL classification: C15, C58, G10, G12
We introduce a novel nonparametric bootstrap for assets with a finite maturity structure such as the nominal yield curve. We analyze the properties of our resampling procedure for inference on bond return predictability. Our method is asymptotically valid and robust to general forms of time and cross-sectional dependence; moreover, it exhibits excellent finite-sample properties. We demonstrate the applicability of our results in two empirical exercises: first, we show that a proxy for equity market tail risk predicts bond returns beyond yield curve factors; second, we provide a bootstrap bias correction and confidence intervals for yield-based probability of recession models.
AUTHOR DISCLOSURE STATEMENT(S)
Richard K. Crump
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Deconstructing the Yield Curve,” joint with Nikolay Gospodinov.
Nikolay Gospodinov
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I declare that I have no relevant or material financial interests that relate to the research described in my paper entitled “Deconstructing the Yield Curve,” joint with Nikolay Gospodinov.
Nikolay Gospodinov
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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