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The Bond Yield Conundrum: Alternative Hypotheses and the State of the Economy

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  • Eijffinger, S.C.W.
  • Mahieu, R.J.
  • Raes, L.B.D.

    (Tilburg University, Center for Economic Research)

Abstract

We study the bond yield conundrum in a macro-finance framework. Building upon a exible and non-structural macro-finance model, we test the hypothesis that the bond yield conundrum is connected to various sources of uncertainty in the financial markets. Moreover we explicitly test for the role of the state of the economy. Our findings give a richer description of the drivers of the term premium yet the conun- drum remains. The results in this paper indicate that the underlying observable drivers of the term premium are not yet fully understood.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-121.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:2010121

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Web page: http://center.uvt.nl

Related research

Keywords: affine models; yield curve; term premium; monetary policy;

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References

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  1. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
  2. Andrew Ang & Sen Dong & Monika Piazzesi, 2007. "No-Arbitrage Taylor Rules," NBER Working Papers 13448, National Bureau of Economic Research, Inc.
  3. Tilak Abeysinghe & Gulasekaran Rajaguru, 2003. "Quarterly Real GDP Estimates for China and ASEAN4 with a Forecast Evaluation," Departmental Working Papers wp0404, National University of Singapore, Department of Economics.
  4. Carlo Ambrogio Favero & Massimilano Marcellino & Francesca Neglia, . "Principal components at work: The empirical analysis of monetary policy with large datasets," Working Papers 223, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Eijffinger, S.C.W. & Geraats, P., 2002. "How Transparent are Central Banks?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-88701, Tilburg University.
  6. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The Bond Yield "Conundrum" from a Macro-Finance Perspective," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 83-109, December.
  7. Ravi Bansal & Hao Zhou, 2002. "Term Structure of Interest Rates with Regime Shifts," Journal of Finance, American Finance Association, vol. 57(5), pages 1997-2043, October.
  8. Chauvet, Marcelle & Piger, Jeremy, 2008. "A Comparison of the Real-Time Performance of Business Cycle Dating Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 42-49, January.
  9. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  10. Basistha, Arabinda & Kurov, Alexander, 2008. "Macroeconomic cycles and the stock market's reaction to monetary policy," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2606-2616, December.
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Cited by:
  1. Thomas Goda & Photis Lysandrou & Chris Stewart, 2011. "The contribution of us bond demand to the us bond yield conundrum of 2004 to 2007: an empirical investigation," DOCUMENTOS DE TRABAJO CIEF 010719, UNIVERSIDAD EAFIT.

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