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Macro-finance VARs and bond risk premia: A caveat

Listed author(s):
  • Taboga, Marco

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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File URL: http://www.sciencedirect.com/science/article/pii/S1058-3300(09)00019-6
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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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