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

Author

Listed:
  • Eijffinger, S.C.W.

    (Tilburg University, Center For Economic Research)

  • Mahieu, R.J.

    (Tilburg University, Center For Economic Research)

  • 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 flexible 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 conundrum 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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Suggested Citation

  • Eijffinger, S.C.W. & Mahieu, R.J. & Raes, L.B.D., 2010. "The Bond Yield Conundrum : Alternative Hypotheses and the State of the Economy," Discussion Paper 2010-121, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:8b320ebf-1447-46c9-82e3-c234495ce384
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    References listed on IDEAS

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    1. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
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    Cited by:

    1. Goda, Thomas & Lysandrou, Photis & Stewart, Chris, 2013. "The contribution of US bond demand to the US bond yield conundrum of 2004–2007: An empirical investigation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 113-136.

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    More about this item

    Keywords

    affine models; yield curve; term premium; monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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