Affine Term Structure Pricing with Bond Supply as Factors

19 Pages Posted: 25 Apr 2016

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies; Harvard University - Department of Economics

Date Written: 2016-04-01

Abstract

This paper presents a theoretical model for analyzing the effect of the maturity structure of government debt on the yield curve. It is an ATSM (affine term structure model) in which the factors for the yield curve include, in addition to the short rate, the government bond supply for each maturity. The supply shock is not restricted to be perfectly correlated across maturities. The effect on the yield curve of a bond supply shock that is local to a maturity is largest at the maturity. This hump-shaped response of the yield curve persists in spite of the absence of preferred-habitat investors.

Keywords: ATSM, yield curve, portfolio balance channel, supply of government bonds, impulse responses

JEL Classification: E43, E58, G12

Suggested Citation

Hayashi, Fumio, Affine Term Structure Pricing with Bond Supply as Factors (2016-04-01). FRB Atlanta CQER Working Paper No. 2016-1. Available at SSRN: https://ssrn.com/abstract=2769473

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

Harvard University - Department of Economics

Littauer Center
Cambridge, MA 02138
United States

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