U.S. Dollar Swap Yields: An Analysis of the Dynamics of Monthly Changes

Abstract

John Maynard Keynes asserted that the central bank sways the long-term interest rate through the influence of its policy rate on the short-term interest rate. Recent empirical research shows that Keynes’s conjecture holds for long-term Treasury yields in the United States. This article investigates whether Keynes’s claim also holds for the monthly changes in U.S.-dollar-denominated long-term swap yields by econometrically modeling its dynamics using an autoregressive distributed lag (ARDL) approach. The econometric modeling reveals that there is a statistically significant effect of the monthly changes in the Treasury bill rate on the monthly changes in swap yields of different maturity tenors after controlling for a host of macroeconomic and financial control variables. The findings from the econometric models that are estimated render a perspicacious Keynesian perspective on key policy questions and contemporary debates in macroeconomics and finance.

Keywords:

• interest rate swaps
• swap yields
• short-term interest rate
• monetary policy
• Federal Reserve
• John Maynard Keynes

JEL Classification Codes:

• E43
• E50
• E58
• E60
• G10
• G12

Notes

1 All figures are in current (nominal) U.S. dollars.

Additional information

Notes on contributors

Tanweer Akram

Tanweer Akram is at Citibank. Khawaja Mamun is at Sacred Heart University. The authors thank Elizabeth Dunn and Michael Stephens for their copyediting support. Views expressed are solely those of the authors. Institutional affiliations are provided for identification purposes only.

Khawaja Mamun

Tanweer Akram is at Citibank. Khawaja Mamun is at Sacred Heart University. The authors thank Elizabeth Dunn and Michael Stephens for their copyediting support. Views expressed are solely those of the authors. Institutional affiliations are provided for identification purposes only.