The Effect Of Government Debt Quantity Shocks On The Term Structure Of Interest Rates

Abstract

<p class="MsoBodyTextIndent" style="text-align: justify; line-height: normal; margin: 0in 35.2pt 0pt 35pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">In this paper, the effect of the maturity composition of marketable public debt on the term structure of interest rate is explored.<span style="mso-spacerun: yes;">  </span>The research has shown that this effect is relatively small.<span style="mso-spacerun: yes;">  </span>Unlike previous research, the yield changes around the quantity shocks are analyzed in relation to these shocks.<span style="mso-spacerun: yes;">  </span>Our results show that yields respond significantly to the auctioning of new bonds.<span style="mso-spacerun: yes;">  </span>The announcements of auctions do not have any impact on yields.<span style="mso-spacerun: yes;">  </span>A two-factor affine yield model is used to explain the relationship between quantity shocks in public debt and term structure of interest rates.<span style="mso-spacerun: yes;">  </span>The parameters are estimated using Generalized Method of Moments.<span style="mso-spacerun: yes;">  </span>While the relationship between quantities and yields is weak, yields can be related to the event of the auctioning process.</span></span></span></p>