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Treasuries Variance Decomposition and the Impact of Monetary Policy

Kontonikas, Alexandros and Nolan, Charles and Zekaite, Zivile and Lamla, Michael (2019) 'Treasuries Variance Decomposition and the Impact of Monetary Policy.' International Journal of Finance and Economics, 24 (4). 1506 - 1519. ISSN 1076-9307

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Abstract

This paper investigates the effect of monetary policy shifts on Treasuries over the last three decades. Using Campbell and Ammer’s (1993) framework, we decompose unexpected excess returns on 2-, 5- and 10-year Treasuries in three components related to revisions in expectations (news) about future excess returns, inflation and real interest rates. We evaluate the impact of conventional and unconventional monetary policy shocks on returns and their components. Our results indicate that expansionary monetary policy shocks are associated with declining inflation expectations and higher Treasuries’ returns.

Item Type: Article
Uncontrolled Keywords: Bond Market Variance Decomposition; Monetary Policy; Financial Crisis.
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 10 Jun 2019 15:17
Last Modified: 30 Jan 2020 13:15
URI: http://repository.essex.ac.uk/id/eprint/24777

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