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Macro-finance VARs and bond risk premia: A caveat

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  • Taboga, Marco

Abstract

At the turn of the century, US and euro area long-term bond yields experienced a remarkable decline and remained at historically low levels despite rising short-term rates (the so called "conundrum"). Estimating macro-finance VARs and no-arbitrage term structure models, many researchers find that the decline in long-term rates was primarily driven by an unprecedented reduction in risk premia. I show that this result might be an artefact of the class of models employed to study the phenomenon.

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Bibliographic Info

Article provided by Elsevier in its journal Review of Financial Economics.

Volume (Year): 18 (2009)
Issue (Month): 4 (October)
Pages: 163-171

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Handle: RePEc:eee:revfin:v:18:y:2009:i:4:p:163-171

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Web page: http://www.elsevier.com/locate/inca/620170

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Keywords: Bond risk premia Term structure Bond yield conundrum;

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