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Price Pressures on UK Real Rates: An Empirical Investigation

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  • Gabriele Zinna

Abstract

We assess the impact of institutional investors’ demand for gilts on UK real rates by structurally estimating the model of Vayanos and Vila (2009). We therefore include those investors believed to display inelastic demand for gilts and preferences for longer-term maturities. The estimated model fits the term structure of real rates well, and strongly supports our choice of institutional investors. These investors’ demand contributed to the decline in medium- to longer-term real rates by compressing bond risk premia. However, the price impact varied across investors and over time, and was only partly attenuated by increased supply.

Suggested Citation

  • Gabriele Zinna, 2016. "Price Pressures on UK Real Rates: An Empirical Investigation," Review of Finance, European Finance Association, vol. 20(4), pages 1587-1630.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:4:p:1587-1630.
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    File URL: http://hdl.handle.net/10.1093/rof/rfv039
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    Cited by:

    1. Giese, Julia & Joyce, Michael & Meaning, Jack & Worlidge, Jack, 2021. "Preferred habitat investors in the UK government bond market," Bank of England working papers 939, Bank of England.
    2. Iryna Kaminska & Gabriele Zinna, 2020. "Official Demand for U.S. Debt: Implications for U.S. Real Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 323-364, March.
    3. Calvet, Laurent E. & Betermier, Sebastien & Jo, Evan, 2019. "A Supply and Demand Approach to Equity Pricing," CEPR Discussion Papers 13974, C.E.P.R. Discussion Papers.
    4. Caio Almeida & Kym Ardison & Daniela Kubudi & Axel Simonsen & José Vicente, 2018. "Forecasting Bond Yields with Segmented Term Structure Models," Journal of Financial Econometrics, Oxford University Press, vol. 16(1), pages 1-33.
    5. Dietrich Domanski & Hyun Song Shin & Vladyslav Sushko, 2017. "The Hunt for Duration: Not Waving but Drowning?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(1), pages 113-153, April.
    6. Giuseppe Grande & Adriana Grasso & Gabriele Zinna, 2019. "The effectiveness of the ECB’s asset purchases at the lower bound," Questioni di Economia e Finanza (Occasional Papers) 541, Bank of Italy, Economic Research and International Relations Area.

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