A Note Concerning the Dynamics of Government Bond Yields

Tanweer Akram

The American Economist, 2021, vol. 66, issue 2, 323-339

Abstract: Keynes argued that the central bank can influence the long-term interest rate on government bonds and the shape of the yield curve mainly through the short-term interest rate. Several recent empirical studies that examine the dynamics of government bond yields not only substantiate Keynes’s view that the long-term interest rate responds markedly to the short-term interest rate but also have relevance for macroeconomic theory and policy. This article relates Keynes’s discussions of money, the state theory of money, financial markets, investors’ expectations, uncertainty, and liquidity preference to the dynamics of government bond yields for countries with monetary sovereignty. Investors’ psychology, herding behavior in financial markets, and uncertainty about the future reinforce the effects of the short-term interest rate and the central bank’s monetary policy actions on the long-term interest rate. JEL classifications : E12; E40; E43; E50; E58; E60; F30; G10; G12; H62; H63

Keywords: money; state theory of money; chartalism; monetary theory; central bank; government bond yields; interest rate; John Maynard Keynes (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:66:y:2021:i:2:p:323-339

DOI: 10.1177/0569434520988275

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