Monetary Policy, Bond Returns and Debt Dynamics

40 Pages Posted: 3 Feb 2015 Last revised: 27 Mar 2015

See all articles by Antje Berndt

Antje Berndt

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics

Sevin Yeltekin

Tepper School of Business, Carnegie Mellon University

Date Written: March 13, 2015

Abstract

Using the government’s intertemporal budget constraint, we quantify the contribution of returns paid on the U.S. government’s debt portfolio to the evolution of the debt-to-GDP ratio. We show that announcements of unconventional monetary policy measures by the Federal Reserve between 2008.IV and 2012, as a part of macroeconomic stabilization, were associated with a sizable increase in returns and debt-to-GDP ratios and contributed to fiscal imbalances. We use the Federal Reserve’s portfolio com- position as a proxy for unconventional monetary policy measures and show that it is significantly related to future bond returns and fiscal balances.

Keywords: monetary policy, debt dynamics, bond returns, predictability

JEL Classification: C5, E4, E6, G1, H6

Suggested Citation

Berndt, Antje and Yeltekin, Sevin, Monetary Policy, Bond Returns and Debt Dynamics (March 13, 2015). Available at SSRN: https://ssrn.com/abstract=2559343 or http://dx.doi.org/10.2139/ssrn.2559343

Antje Berndt (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Canberra, ACT 0200
Australia

HOME PAGE: http://www.cbe.anu.edu.au/about/staff-directory/?profile=Antje-Berndt

Sevin Yeltekin

Tepper School of Business, Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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