Long-Term Interest Rates, the Yield Curve, and Hyperinflation

2009 ◽  
pp. 107-130
Author(s):  
Farrokh K. Langdana
Keyword(s):  
Interest Rates ◽  
Yield Curve

scholarly journals Some Lessons from the Yield Curve

1995 ◽  
Vol 9 (3) ◽  
pp. 129-152 ◽  
Author(s):  
John Y Campbell
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Bond Market ◽  
Expectations Hypothesis ◽  
Expectation Hypothesis ◽  
Maturity Structure ◽  
Short And Long Term ◽  
The U.S

This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectation hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall, which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in monetary policy in the spring of 1994 and reviews the debate over the optimal maturity structure of the U.S. government debt.

scholarly journals Recession Probabilities

2016 ◽  
pp. 1-6
Author(s):  
O. Emre Ergungor
Keyword(s):  
Simple Model ◽  
Lower Bound ◽  
Interest Rates ◽  
Statistical Models ◽  
Predictive Power ◽  
Yield Curve ◽  
Short Term ◽  
Term Spread ◽  
Portfolio Constraints

Statistical models that estimate 12-month-ahead recession probabilities using the term spread have been around for many years. However, the reliability of the term spread as a predictor may have been affected by short-term interest rates being at zero. At the zero lower bound, long-term yields cannot go too far into negative territory due to the portfolio constraints of institutional investors. Therefore, the yield curve may not invert when it should or as much as it should despite the anticipated path of the economy. I enhance the simple model with two variables that should have predictive power for recessions.

scholarly journals Can Yield Curve Inversions Be Predicted?

2018 ◽  
pp. 1-6
Author(s):  
Kurt G. Lunsford
Keyword(s):  
Interest Rates ◽  
Good Predictor ◽  
Yield Curve ◽  
Short Term

An inverted Treasury yield curve—a yield curve where short-term Treasury interest rates are higher than long-term Treasury interest rates—is a good predictor of recessions. Because of this, economists and policymakers often assess the risk of a yield curve inversion when the yield curve is flattening. I study the forecastability of yield curve inversions. Professional forecasters did not predict the beginning of the yield curve inversions prior to the 1990–1991, 2001, and 2008–2009 recessions. In all three cases, professional forecasters failed to predict the magnitude of the rise in short-term interest rates. Prior to the 2008–2009 recession, forecasters also overpredicted long-term interest rates.

Adoption of yield-curve control could aid US recovery

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Balance Sheet ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Forward Guidance ◽  
Reserve Bank ◽  
The Us

Subject Yield-curve control. Significance The US Federal Reserve (Fed) is contemplating yield-curve control (YCC), a policy pursued by the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) alongside quantitative easing (QE) and forward guidance. A central bank does this by capping the yields on government bonds of a chosen maturity through unlimited bond purchases. This supports the economy by reducing borrowing costs for financial institutions, households and businesses. Impacts By providing transparency over a central bank’s actions, YCC would be likely to reduce the volatility of long-term interest rates. YCC adds to the Fed balance sheet; the Fed will need a credible exit strategy to cut market volatility and the risk of Fed capital losses. A sharp uptick in inflation may put upward pressure on long-term yields, necessitating higher Fed purchases to maintain its targeted peg.

scholarly journals When Does Monetary Policy Sway House Prices? A Meta-Analysis

2021 ◽  
Author(s):  
Dominika Ehrenbergerova ◽  
Josef Bajzik ◽  
Tomas Havranek
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
House Prices ◽  
Meta Analysis ◽  
Empirical Literature ◽  
Short Term ◽  
Mortgage Markets ◽  
The Mean ◽  
The Impact

Several central banks have leaned against the wind in the housing market by increasing the policy rate preemptively to prevent a bubble. Yet the empirical literature provides mixed results on the impact of short-term interest rates on house prices: the estimated semi-elasticities range from -12 to positive values. To assign a pattern to these differences, we collect 1,447 estimates from 31 individual studies that cover 45 countries and 69 years. We then relate the estimates to 39 characteristics of the financial system, business cycle, and estimation approach. Our main results are threefold. First, the mean reported estimate is exaggerated by publication bias, because insignificant results are underreported. Second, omission of important variables (liquidity and long-term rates) likewise exaggerates the effects of short-term rates on house prices. Third, the effects are stronger in countries with more developed mortgage markets and generally later in the cycle when the yield curve is flat and house prices enter an upward spiral.

scholarly journals Central bank planning: Unconventional monetary policy and the price of bending the yield curve

2017 ◽  
Author(s):  
Benjamin Braun
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Yield Curve ◽  
Structural Break ◽  
Central Banks ◽  
State Agency ◽  
Policy Interventions ◽  
Forward Guidance ◽  
Central Bankers

Central banks have increasingly used communication to guide market actors’ expectations of future rates of interest, inflation, and growth. However, aware of the pitfalls of (financial) central planning, central bankers used to draw a line by restricting their monetary policy interventions to short-term interest rates. Longer-term rates, they argued, reflected decentralised knowledge and should be determined by market forces. By embracing forward guidance and quantitative easing (QE) to target long-term rates, central banks have crossed that line. While consistent with the post-1980s expansion of the temporal reach of monetary policy into the future, these unconventional policies nevertheless mark a structural break – the return of hydraulic macroeconomic state agency, refashioned for a financialised economy.

The stimulus schemes will stress the financial system

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Federal Reserve ◽  
Financial Stability ◽  
Asset Prices ◽  
Yield Curve ◽  
Corporate Debt ◽  
Content Type ◽  
Negative Interest Rates

Significance While the Federal Reserve (Fed) rejects negative interest rates, and instead considers yield-curve control, even the prospect of negative US rates is accentuating distortions in asset prices and fuelling concerns about global financial stability after the pandemic. Impacts The Fed’s decision to start buying corporate debt has led to a surge in bond issuance; many firms may struggle as the stimulus is unwound. Beyond Japan, the euro-area is nearest deflation; the ECB chief economist warns that demand will be low for some time. The VIX Index, a measure of upcoming US equities volatility, remains above its long-term average, but will be prone to spikes.

Asset Valuation

2019 ◽  
pp. 111-120
Author(s):  
Alan N. Rechtschaffen
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Yield Curve ◽  
Market Demand ◽  
Asset Valuation ◽  
Federal Funds ◽  
Yield Curves ◽  
Federal Funds Rate ◽  
The Great Recession

This chapter begins with a discussion of the use of interest rates in asset valuation. During the Great Recession, the Federal Reserve has navigated U.S. interest rates lower by first reducing the target for the federal funds rate to zero, and then engaging in a process of quantitative easing by purchasing longer-term securities. The effect of the Federal Reserve's actions has been to lower interest rates that affect valuation models across all assets and investments. The chapter then discusses interest rate yield curve, covering the types of yield curves, why the yield curve may be flat or inverted, the increase in market demand for long-term securities, and long-term yield affected by Federal Reserve monetary policy.

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