Macroeconomic shocks and the forward yield curve: how important is monetary policy?

The associations between macroeconomic fluctuations and the yield curve tend to be explained by the reactions of the monetary authority. This paper evaluates how macroeconomics shocks affect the forward yield curve for domestic and foreign debt markets in Venezuela, where monetary policy is not the main source of macroeconomic fluctuations. As previous results in the literature, macroeconomic shocks affect more strongly the short end of the yield curve in the expected direction. Overall, supply shocks explain most of the variability of long-term yields, spread and volatility. Nonetheless, short-term yield movements can be associated with general monetary conditions of the economy and not necessarily with monetary policy actions.