Supply shocks, demand shocks and yield curve dynamics

Abstract

This paper presents a framework for extracting the supply and demand shocks using the revisions of expectations obtained from a Survey of Professional Forecasters. The main contribution of this paper is the identification of these shocks and the subsequent assessment of their impact on yield curve dynamics. This allows for the asymmetry in the bond yield movements, where we show that yields react differently to supply and demand shocks. The analysis is performed on the US data ranging from 1969 (q4) to 2022 (q1).