The Review of Asset Pricing Studies Vol. 11 No. 1 2021
Economic-State Variation in Uncertainty-Yield Dynamics
Abstract
We show there is a much stronger negative, dynamic relation between changes in economic uncertainty and Treasury yields over weaker economic times since at least 1990. We document this economic-state variation in uncertainty-yield dynamics for weekly and monthly change horizons, for nominal yields and real-yield proxies, for multiple economic-state identification methods, and for different economic uncertainty metrics. We present additional findings that suggest short-term fluctuations in precautionary-savings and consumption-smoothing forces are more impactful on interest rate dynamics during weaker economic times, especially relying on surveys of expected economic growth and inflation. Received February 8, 2019; editorial decision August 24, 2020 by Editor Nikolai Roussanov.
- DOI
- 10.1093/rapstu/raaa023
- Volume
- 11
- Issue
- 1
- Pages
- 60-104
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref