Always and Everywhere Inflation? Treasuries Variance Decomposition and the Impact of Monetary Policy

Alexandros Kontonikas (), Charles Nolan and Zivile Zekaite

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper investigates the sources of variation in Treasury bonds returns and the role of monetary policy over the last three decades. At the first stage of our analysis, we decompose unexpected excess returns on 2-, 5- and 10-year Treasury bonds in three components related to revisions in expectations (news) about future excess returns, inflation and real interest rates. Our results indicate that inflation news is the key driver of Treasury bond returns. At the second stage, we evaluate the impact of conventional and unconventional monetary policy on Treasury bond returns and their components. We find that the positive impact of monetary policy easing on Treasury bond returns is largely explained through downward revisions in inflation expectations.

Keywords: Bond Market Variance Decomposition; Monetary Policy; Financial Crisis. (search for similar items in EconPapers)
JEL-codes: E44 E52 G01 G12 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2015_17

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