The Empirics of UK Gilts’ Yields

Levy Economics Institute, Working Papers Series, No. 969

51 Pages Posted: 13 Nov 2020

See all articles by Tanweer Akram

Tanweer Akram

Citibank

Huiqing Li

Central University of Finance and Economics (CUFE) - School of National Fiscal Development

Date Written: September 24, 2020

Abstract

This paper analyzes the nominal yields of UK gilt-edged securities (“gilts”) based on a Keynesian perspective, which holds that the short-term interest rate is the primary driver of the long-term interest rate. Quarterly data are used to model gilts’ nominal yields. These models bring to light the complex dynamics relating the nominal yields on gilts to the short-term interest rate, inflation, the growth of industrial production, and the government debt ratio. The results show that the short-term interest rate has a crucial influence on the nominal yields on gilts, even after controlling for various factors. Contrary to widely held views, a higher government debt ratio does not lead to higher nominal yields.

Keywords: UK Gilt-Edged Securities, Government Bonds, Long-Term Interest Rates, Nominal Bond Yields, Government Debt

JEL Classification: E43, E50, E58, E60, G10, G12

Suggested Citation

Akram, Tanweer and Li, Huiqing, The Empirics of UK Gilts’ Yields (September 24, 2020). Levy Economics Institute, Working Papers Series, No. 969, Available at SSRN: https://ssrn.com/abstract=3698904 or http://dx.doi.org/10.2139/ssrn.3698904

Tanweer Akram (Contact Author)

Citibank ( email )

Irving, TX 75039

Huiqing Li

Central University of Finance and Economics (CUFE) - School of National Fiscal Development ( email )

39 Xueyuan S Rd
Haidian
Beijing
China

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