Determinants of Long-Term Interest Rates in the United States and the Euro Area: A Multivariate Approach

41 Pages Posted: 21 Oct 2010

See all articles by Julien Idier

Julien Idier

Banque de France - Centre de Recherche; European Central Bank (ECB)

Caroline Jardet

Banque de France

Aymeric de Loubens

affiliation not provided to SSRN

Date Written: June 2007

Abstract

This article looks at the factors explaining the level of US and European long-term interest rates between 1986 and 2005. We begin by selecting the structural determinants of long-term interest rates, dealing with the US and European cases separately. However, a univariate framework cannot capture market integration and suffers from a number of statistical limitations. Switching to a multivariate setting reveals spillover from US to euro area long-term yields, with no reciprocal effect. The model allows us to draw up a timeline of events affecting the level of US and European long-term interest rates. Accordingly, the bursting of the internet bubble, purchases by foreign agents, both official and private, and the increase in global liquidity all seemingly exerted downward pressure on US long-term interest rates and, indirectly, on euro area long rates.

Keywords: long term interest rates, Conundrum, multivariate model

JEL Classification: E43 C32

Suggested Citation

Idier, Julien and Jardet, Caroline and de Loubens, Aymeric, Determinants of Long-Term Interest Rates in the United States and the Euro Area: A Multivariate Approach (June 2007). Banque de France Working Paper No. 170, Available at SSRN: https://ssrn.com/abstract=1694505 or http://dx.doi.org/10.2139/ssrn.1694505

Julien Idier (Contact Author)

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
75049 Paris Cedex 01
France

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Caroline Jardet

Banque de France ( email )

31 rue croix des petits champs
75049 Paris Cedex 01
France

Aymeric De Loubens

affiliation not provided to SSRN ( email )

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