An inquiry concerning long-term US interest rates using monthly data

Arbeitspapier

This paper undertakes an empirical inquiry concerning the determinants of long-term interest rates on US Treasury securities. It applies the bounds testing procedure to cointegration and error correction models within the autoregressive distributive lag (ARDL) framework, using monthly data and estimating a wide range of Keynesian models of long-term interest rates. While previous studies have mainly relied on quarterly data, the use of monthly data substantially expands the number of observations. This in turn enables the calibration of a wide range of models to test various hypotheses. The short-term interest rate is the key determinant of the long-term interest rate, while the rate of core inflation and the pace of economic activity also influence the long-term interest rate. A rise in the ratio of the federal fiscal balance (government net lending/borrowing as a share of nominal GDP) lowers yields on long-term US Treasury securities. The short- and long-run effects of short-term interest rates, the rate of inflation, the pace of economic activity, and the fiscal balance ratio on long-term interest rates on US Treasury securities are estimated. The findings reinforce Keynes's prescient insights on the determinants of government bond yields.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 894

Classification and Topics

• Classification: Wirtschaft ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Central Banks and Their Policies ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; General Financial Markets: General (includes Measurement and Data) ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Government Bond Yields ; Long-term Interest Rates ; Short-term Interest Rates ; Monetary Policy ; Central Bank ; John Maynard Keynes

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Akram, Tanweer ; Li, Huiqing
• Event: Veröffentlichung
• (who): Levy Economics Institute of Bard College
• (where): Annandale-on-Hudson, NY
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/173503