Department of Economics and Business Economics

Bond Risk Premiums at the Zero Lower Bound

Research output: Working paperResearch

Documents

  • rp19_10

    Final published version, 759 KB, PDF document

  • Martin Møller Andreasen
  • Kasper Jørgensen, Board of Governors of the Federal Reserve System, United States
  • Andrew Meldrum, Board of Governors of the Federal Reserve System, United States
This paper documents a significantly stronger relationship between the slope of the yield curve and future excess bond returns on Treasuries from 2008-2015 than before 2008. This new predictability result is not matched by the standard shadow rate model with Gaussian factor dynamics, but extending the model with regime-switching in the (physical) dynamics of the factors at the lower bound resolves this shortcoming. The model is also consistent with the downwards trend in surveys on short rate expectations at long horizons, but requires a break in the level of its factors to closely fit the low level of these surveys since 2015.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages42
Publication statusPublished - 20 May 2019
SeriesCREATES Research Papers
Number2019-10

See relations at Aarhus University Citationformats

Download statistics

No data available

ID: 153716697