Authors: Richard K. Crump and Nikolay Gospodinov
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Staff Reports
Deconstructing the Yield Curve
Number 884
April 2019 Revised August 2024
April 2019 Revised August 2024
JEL classification: C15, C58, G10, G12
We introduce a novel nonparametric bootstrap for the yield curve which is agnostic to the true factor structure of interest rates. We deconstruct the yield curve into primitive objects, with weak cross-sectional and time-series dependence, that serve as building blocks for resampling the data. We analyze the properties of the bootstrap for mimicking salient features of the data and conducting valid inference. We demonstrate the benefits of our general method by revisiting the predictability of bond returns based on slow-moving fundamentals. We find that trend inflation, but not the equilibrium real rate, has predictive power for future bond returns.
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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