The Empirics of UK Gilts' Yields

Tanweer Akram and Huiqing Li

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper analyzes the nominal yields of UK gilt-edged securities ("gilts") based on a Keynesian perspective, which holds that the short-term interest rate is the primary driver of the long-term interest rate. Quarterly data are used to model gilts' nominal yields. These models bring to light the complex dynamics relating the nominal yields on gilts to the short-term interest rate, inflation, the growth of industrial production, and the government debt ratio. The results show that the short-term interest rate has a crucial influence on the nominal yields on gilts, even after controlling for various factors. Contrary to widely held views, a higher government debt ratio does not lead to higher nominal yields.

Keywords: UK Gilt-Edged Securities; Government Bonds; Long-Term Interest Rates; Nominal Bond Yields; Government Debt (search for similar items in EconPapers)
JEL-codes: E43 E50 E58 E60 G10 G12 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_969

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