The Dynamics of Monthly Changes in US Swap Yields: A Keynesian Perspective

Tanweer Akram and Khawaja Mamun

Economics Working Paper Archive from Levy Economics Institute

Abstract: John Maynard Keynes (1930) asserted that the central bank sways the long-term interest rate through the influence of its policy rate on the short-term interest rate. Recent empirical research shows that Keynes's conjecture holds for long-term Treasury yields in the United States. This paper investigates whether Keynes's conjecture also holds for the monthly changes in US long-term swap yields by econometrically modeling its dynamics using an autoregressive distributed lag (ARDL) approach. The econometric modeling reveals that there is statistically significant effect on the monthly changes in the Treasury bill rate on the monthly changes in swap yields of different maturity tenors after controlling for a host of macroeconomic and financial control variables. The findings from the econometric models that are estimated render a perspicacious Keynesian perspective on key policy questions and contemporary debates in macroeconomics and finance.

Keywords: Interest Rate Swaps; Swap Yields; Short-Term Interest Rate; Monetary Policy; Federal Reserve; John Maynard Keynes (search for similar items in EconPapers)
JEL-codes: E43 E50 E58 E60 G10 G12 (search for similar items in EconPapers)
Date: 2022-09
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