Abstract

https://ssrn.com/abstract=2831092
 


 



Monetary Policy Uncertainty and Bond Risk Premium


Fuwei Jiang


Central University of Finance and Economics (CUFE) - School of Finance

Guoshi Tong


Renmin University

October 1, 2016


Abstract:     
We show that uncertainty of monetary policy (MPU) commands a risk premium in the US Treasury bond market. Using the news based MPU measure in Baker, Bloom, and Davis (2016) to capture monetary policy uncertainty, we find that MPU forecasts significantly and positively future monthly Treasury bond excess returns. This forecastability remains significant controlling for standard bond risk premium predictors based on yield curve and macroeconomic fundamentals. The predictive power of MPU is not driven by uncertainty of economic growth, inflation and general economic condition, and is confirmed in out-of-sample tests.

Number of Pages in PDF File: 41

Keywords: Bond Return Predictability, Monetary Policy Uncertainty, Out-of-sample Forecasting

JEL Classification: C22, C53, G11, G12, G17


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Date posted: August 29, 2016 ; Last revised: January 17, 2017

Suggested Citation

Jiang, Fuwei and Tong, Guoshi, Monetary Policy Uncertainty and Bond Risk Premium (October 1, 2016). Available at SSRN: https://ssrn.com/abstract=2831092 or http://dx.doi.org/10.2139/ssrn.2831092

Contact Information

Fuwei Jiang (Contact Author)
Central University of Finance and Economics (CUFE) - School of Finance ( email )
39 South College Road
Haidian District
Beijing, 100081
China
Guoshi Tong
Renmin University ( email )
59 Zhongguancun Street
Beijing, 100872
China
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