Can US Wage Increases be Regarded as a Leading Indicator for Bond Rates?
Article Sidebar
Main Article Content
Abstract
After the subprime meltdown, the Federal Reserve focused its attention on US non-farm payroll data in order to pave the way for its fund rate hikes. As time went by, the Federal Reserve deemed particularly one sub-component of this data, namely the increments on average weekly wage growth as a proxy for inflation and thus a plausible explanation for raising the interest rates. In that aspect, we decide to elaborate on this issue further and examine whether this implemented strategy indeed had a reflection in the real market. For doing so, we intend to determine whether there is any causality relation in either direction between US average weekly wage increases and 10-year Treasury Bond rates. We utilize the Toda-Yamamoto causality approach and come up with a statistically significant result between wages and bond rates. For robustness, we also consider the unemployment rate and consumption expenditures as independent variables.
Downloads
Article Details
References
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74, 427–31. doi:10.2307/2286348
Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49, 1057–72. doi:10.2307/1912517
Granger, C. W. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37, 424–38. doi:10.2307/1912791
İlalan, D. (2018). How US Wages Effect Post-socialist European Stock Markets: An Empirical Study. Economics and Business Letters, 7, 180–89. doi:10.17811/ebl.7.4.2018.179-188
İlalan, D., & Özel, Ö. (2019). Unit Root Testing in the Presence of Mean Reverting Jumps: Evidence from US T-Bond Yields. International Journal of Nonlinear Sciences and Numerical Simulation, 20, 145–52. doi:10.1515/ijnsns-2018-0012
Özel, Ö., & İlalan, D. (2018). An Alternative Mean Reversion Test for Interest Rates. Central Bank Review, 7, 35–39. doi:10.1016/j.cbrev.2017.12.001
Phillips, P. C., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika, 75, 335–46. doi:10.1093/biomet/75.2.335
Rambaldi, A. N. (1997). Multiple Time Series Models and Testing for Causality and Exogeneity: A Review. Working Papers in Econometrics and Applied Statistics, Department of Econometrics, University of New England, Australia.
Steelman, A. (2011). The Federal Reserve's 'dual mandate': The Evolution of an Idea. The Federal Reserve's 'dual mandate': The Evolution of an Idea.
Taylor, J. B. (2011). End the Fed's Dual Mandate and Focus on Prices. End the Fed's Dual Mandate and Focus on Prices.
Thornton, D. L. (2011). What Does the Change in the FOMC's Statement of Objectives Mean? Economic Synopses, 2011. doi:10.20955/es.2011.1
Toda, H. Y., & Yamamoto, T. (1995). Statistical Inferences in Vector Autoregressions with Possibly Integrated Processes. Journal of Econometrics, 66, 225–50. doi:10.1016/0304-4076(94)01616-8
Zapata, H. O., & Rambaldi, A. N. (1997). Monte Carlo Evidence On Cointegration and Causation. Oxford Bulletin of Economics and Statistics, 59, 285–98. doi:10.1111/1468-0084.00065