Bandholz, Harm and Clostermann, Joerg and Seitz, Franz (2007): Explaining the US Bond Yield Conundrum.
Download (172kB) | Preview
We analyze if and to what extent fundamental macroeconomic factors, temporary influences or more structural factors have contributed to the low levels of US bond yields over the last few years. For that purpose, we start with a general model of interest rate determination. The empirical part consists of a cointegration analysis with an error correction mechanism. We are able to establish a stable long-run relationship and find that the behavior of bond yields, even during the last two years, can well be explained. Alongside the more traditional macroeconomic determinants like core inflation, monetary policy and the business cycle, we also include foreign holdings of US Treasuries. The latter should capture the frequently mentioned structural effects on long-term interest rates. Finally, our bond yield equation outperforms a random walk model in different forecasting exercises.
|Item Type:||MPRA Paper|
|Original Title:||Explaining the US Bond Yield Conundrum|
|Keywords:||bond yields; interest rates; cointegration; inflation; forecasting|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
|Depositing User:||Franz Seitz|
|Date Deposited:||27. Mar 2007|
|Last Modified:||12. Feb 2013 23:24|
Bandholz, H., J. Clostermann and F. Seitz (2007), Explaining the US Bond Yield Conundrum, University of Applied Sciences Weiden Discussion Paper no. 2, February 2007