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Discussion Paper Details

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Title: The bond yield conundrum: alternative hypotheses and the state of the economy

Author(s): Sylvester C W Eijffinger, Ronald J Mahieu and Louis Raes

Publication Date: October 2010

Keyword(s): affine models, monetary policy, term premium and yield curve

Programme Area(s): International Macroeconomics

Abstract: We study the bond yield conundrum in a macro-finance framework. Building upon a flexible and non-structural macro-finance model, we test the hypothesis that the bond yield conundrum is connected to various sources of uncertainty in the financial markets. Moreover we explicitly test for the role of the state of the economy. Our findings give a richer description of the drivers of the term premium yet the conundrum remains. The results in this paper indicate that the underlying observable drivers of the term premium are not yet fully understood.

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Bibliographic Reference

Eijffinger, S, Mahieu, R and Raes, L. 2010. 'The bond yield conundrum: alternative hypotheses and the state of the economy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8063