Macro-finance VARs and bond risk premia: A caveat

Marco Taboga ()

Review of Financial Economics, 2009, vol. 18, issue 4, pages 163-171

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.

Keywords: Bond; risk; premia; Term; structure; Bond; yield; conundrum (search for similar items in EconPapers)
Date: 2009

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Working Paper: Macro-finance VARs and bond risk premia: a caveat (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:revfin:v:18:y:2009:i:4:p:163-171

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