Fiscal Imbalances and Bond Returns
نویسنده
چکیده
Our goal is to understand the response of bond returns to the government’s fiscal imbalances. We offer a framework that defines fiscal imbalances and links them to returns on government bonds. We show that our measure of fiscal imbalances contains significant information about future returns on the government’s debt portfolio up to two years. We also show that fiscal imbalances have significant predictive power not only for short-term bond returns, but also for long-term bond returns, even after controlling for the Cochrane-Piazzesi factor and the Ludvigson-Ng (2009) macro factors. JEL Classifications: C5, E4, E6, G1, H6
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