Skip to Main Content

Economic Quarterly

Fall 1994

An Error-Correction Model of the Long-Term Bond Rate

Yash P. Mehra

An equation explaining the long-run behavior of the bond rate from 1971 to 1993 indicates that inflation is the main long-run economic determinant of the bond rate. Monetary policy actions have short-run but no long-run effects on the rate. During the subperiod 1979 to 1993, however, some episodes of large, short-run upswings in the rate remain unpredicted. Perhaps they reflect inflation scares as in Goodfriend (1993).

Subscribe to Economic Quarterly

Receive an email notification when Economic Quarterly is posted online:

phone Contact Us

Lisa Kenney (804) 697-8179