An Inquiry Concerning Long-term US Interest Rates Using Monthly Data

Tanweer Akram and Huiqing Li ()

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper undertakes an empirical inquiry concerning the determinants of long-term interest rates on US Treasury securities. It applies the bounds testing procedure to cointegration and error correction models within the autoregressive distributive lag (ARDL) framework, using monthly data and estimating a wide range of Keynesian models of long-term interest rates. While previous studies have mainly relied on quarterly data, the use of monthly data substantially expands the number of observations. This in turn enables the calibration of a wide range of models to test various hypotheses. The short-term interest rate is the key determinant of the long-term interest rate, while the rate of core inflation and the pace of economic activity also influence the long-term interest rate. A rise in the ratio of the federal fiscal balance (government net lending/borrowing as a share of nominal GDP) lowers yields on long-term US Treasury securities. The short- and long-run effects of short-term interest rates, the rate of inflation, the pace of economic activity, and the fiscal balance ratio on long-term interest rates on US Treasury securities are estimated. The findings reinforce Keynes's prescient insights on the determinants of government bond yields.

Keywords: Government Bond Yields; Long-term Interest Rates; Short-term Interest Rates; Monetary Policy; Central Bank; John Maynard Keynes (search for similar items in EconPapers)
JEL-codes: E43 E50 E58 E60 G10 G12 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.levyinstitute.org/pubs/wp_894.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_894

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).