Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238667 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 977
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
Abstract: 
This paper relates Keynes's discussions of money, the state theory of money, financial markets, investors' expectations, uncertainty, and liquidity preference to the dynamics of government bond yields for countries with monetary sovereignty. Keynes argued that the central bank can influence the long-term interest rate on government bonds and the shape of the yield curve mainly through the short-term interest rate. Investors' psychology, herding behavior in financial markets, and uncertainty about the future reinforce the effects of the short-term interest rate and the central bank's monetary policy actions on the long-term interest rate. Several recent empirical studies that examine the dynamics of government bond yields substantiate the Keynesian perspective that the long-term interest rate responds markedly to the short-term interest rate. These empirical studies not only vindicate the Keynesian perspective but also have relevance for macroeconomic theory and policy.
Subjects: 
Money
State Theory of Money
Chartalism
Monetary Theory
Central Bank
Government Bond Yields
Interest Rate
John Maynard Keynes
JEL: 
E12
E40
E43
E50
E58
E60
F30
G10
G12
H62
H63
Document Type: 
Working Paper

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