Interest rate conundrums
Why has the sensitivity of long-term interest rates to changes in short rates become stronger at high frequencies?
In our model, the rising excess sensitivity of long rates observed at high frequencies since 2000 is explained by the combination of (i) a growing set of investors who tend to reach for yield when short rates decline and (ii) a gradual arbitrage response to these demand shifts.
Interest Rate Conundrums in the 21st Century
Authors: Samuel G. Hanson, David Lucca, Jonathan H. Wright
From: Harvard University, Federal Reserve Bank of New York, Johns Hopkins University
Real rates and stock-bond comovements
Gregory Duffy examines empirically the comovement between quarterly changes in short-term ex ante real rates and quarterly excess stock returns. He finds that changes in real rates are more closely associated with news about current output than with news about expected future output. This means that evidence for the period 1969-2017 does not support the link between real-rate news and news about expected changes. This is the link that macro-finance models are typically based on.
Expected inflation, real rates, and stock-bond comovement
Author: Gregory R. Duffee
From:Johns Hopkins University
