Matteo Leombroni, Andrea Vedolin, Gyuri Venter, Paul Whelan, 18 October 2018

It has been argued that central bank announcements can simultaneously convey both optimism and pessimism. This column explores the issue by looking at the effects of ECB communications on euro area bond yields. It finds direct evidence that monetary policy not only affects long-term rates through expectations of future short-term rates, but also by influencing the risk premia investors need in order to hold long-term bonds. 

Michael D. Bauer, James Hamilton, 07 July 2017

Several recent empirical papers have challenged the ‘spanning hypothesis’, which holds that the level, slope, and curvature of bond yield curves are sufficient to forecast returns and estimate bond risk premia This column argues that these studies suffer from a previously unrecognised standard error bias. Controlling for this bias, false positives are found to be between six and twelve times more likely, suggesting that the evidence against the spanning hypothesis is substantially less convincing than would appear from the studies.

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