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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Huiqing Li Central University of Finance and Economics August 2017Tanweer Akram is director of global public policy and economics at Thrivent Financial. Huiqing Li is assistant professor in the School of National Fiscal Development at the Central University of Finance and Economics. The authors thank the participants of various seminars for their valuable suggestions. Disclaimer: The authors' institutional affiliations are provided solely for identification purposes. Views expressed are solely those of the authors and the standard disclaimer applies. The views are not necessarily those of Thrivent Financial, Thrivent Investment Management, or any affiliates. This is for information purposes only and should not be construed as an offer to buy or sell any investment product or service. Disclosure: Tanweer Akram's employer, Thrivent Financial, invests in a wide range of securities, including U.S. Treasury securities. Asset management services are provided by Thrivent Asset Management, LLC, a wholly owned subsidiary of Thrivent Financial for Lutherans. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals.Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad. ABSTRACTThis 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 longterm interest rate, while the rate of core inflation and the pace of economic activity also influence the long-term interest rate. A...

When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)

“…Figure 3 shows, as a percent of GDP, the debt held by the public, debt held by the Fed, and debt held by the public less debt held by the Fed-which is b from (3)-for 1940-2018. Consistent increases in b appear during 1940-1946, 1980-1993, and 2008-2018 Figure 2, the largest adjusted primary deficits were during 1940-1946 (average of 13.34 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 percent of GDP) and 2008-2018 (average of 3.67 percent of GDP). The adjusted debt service ratio remained very low during both of the highest primary deficit ratio periods-1.07 percent of GDP during 1940-1946 and 1.14 percent of GDP during 2008-2018.…”

“…The two were similar historically, with remittances averaging 93 percent of interest paid to the Fed during 1960-2007. During 2008-2017, remittances were significantly greater than interest paid to the Fed given the Fed's additional earnings on mortgage-backed securities (MBS) in particular.…”

“…Akram and Li (2017;2018) find that short-term interest rates drive long-term Treasury rates in the United States and Japan, respectively. Akram and Das (2019) present similar results for long-term government bond rates in India.…”