Professor Kočenda published an article in the Journal of Economic Dynamics and Control

Adam Kučera, Evžen Kočenda a Aleš Maršál have published an article titled Yield curve dynamics and fiscal policy shocks in the Journal of Economic Dynamics and Control.

The paper examines how anticipated, unanticipated, and uncertainty shocks in U.S. government spending affect the term structure of interest rates, showing that fiscal policy design significantly influences the yield curve and financing costs. Combining a recursively-identified fiscal SVAR with an affine term-structure model that incorporates five-year Congressional Budget Office projections and the Economic Policy Uncertainty index, authors recover three orthogonal fiscal shocks and trace their effects on bond markets and economic activity. They find that heightened fiscal policy uncertainty induces a flight to quality, causing immediate declines in Treasury yields. Unanticipated spending shocks have a limited impact on yields, underscoring the forward-looking nature of financial markets. Anticipated spending shocks also lower yields as investors adjust expectations about future macroeconomic conditions. Contrary to traditional views, the authors observe a contractionary effect on real GDP growth, as lower yields reinforce precautionary behavior among households and firms. Macro-finance framework captures the bidirectional relationship between macroeconomic expectations and financial markets, highlighting the critical role of the yield curve in transmitting fiscal policy shocks to the real economy.