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Affine term structure pricing with bond supply as factors

Fumio Hayashi

No 2016-1, FRB Atlanta CQER Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper presents a theoretical model for analyzing the effect of the maturity structure of government debt on the yield curve. It is an ATSM (affine term structure model) in which the factors for the yield curve include, in addition to the short rate, the government bond supply for each maturity. The supply shock is not restricted to be perfectly correlated across maturities. The effect on the yield curve of a bond supply shock that is local to a maturity is largest at the maturity. This hump-shaped response of the yield curve persists in spite of the absence of preferred-habitat investors.

Keywords: ATSM; yield curve; portfolio balance channel; supply of government bonds; impulse responses (search for similar items in EconPapers)
JEL-codes: E43 E58 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2016-04-01
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