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Macro‐finance VARs and bond risk premia: A caveat

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  • Marco Taboga

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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  • Marco Taboga, 2009. "Macro‐finance VARs and bond risk premia: A caveat," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 163-171, October.
    • Handle: RePEc:wly:revfec:v:18:y:2009:i:4:p:163-171
    DOI: 10.1016/j.rfe.2009.06.002
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    1. Rudra Sensarma & Indranil Bhattacharyya, 2016. "Measuring monetary policy and its impact on the bond market of an emerging economy," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 9(2), pages 109-130, July.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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