A Note Concerning Government Bond Yields

Levy Economics Institute, Working Papers Series, November 2020

28 Pages Posted: 7 Dec 2020

Date Written: November 17, 2020

Abstract

This paper relates Keynes’s discussions of money, the state theory of money, financial markets, investors’ expectations, uncertainty, and liquidity preference to the dynamics of government bond yields for countries with monetary sovereignty. Keynes argued that the central bank can influence the long-term interest rate on government bonds and the shape of the yield curve mainly through the short-term interest rate. Investors’ psychology, herding behavior in financial markets, and uncertainty about the future reinforce the effects of the short-term interest rate and the central bank’s monetary policy actions on the long-term interest rate. Several recent empirical studies that examine the dynamics of government bond yields substantiate the Keynesian perspective that the long-term interest rate responds markedly to the short-term interest rate. These empirical studies not only vindicate the Keynesian perspective but also have relevance for macroeconomic theory and policy.

Keywords: Money, State Theory of Money, Chartalism, Monetary Theory, Central Bank, Government Bond Yields, Interest Rate, John Maynard Keynes

JEL Classification: E12, E40, E43, E50, E58, E60, F30, G10, G12, H62, H63

Suggested Citation

Akram, Tanweer, A Note Concerning Government Bond Yields (November 17, 2020). Levy Economics Institute, Working Papers Series, November 2020, Available at SSRN: https://ssrn.com/abstract=3732314 or http://dx.doi.org/10.2139/ssrn.3732314

Tanweer Akram (Contact Author)

General Motors ( email )

300 Renaissance Center
Detroit, MI 48243

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
43
Abstract Views
280
PlumX Metrics