Observation on U.S. Treasury Yields
Observation on U.S. Treasury Yields
Date: Oct 10, 2012
Introduction In this paper, we establish three regression models on U.S. Treasury yields with two different maturities: three-month and one-year. Model 1 is to interpret the relationship between unemployment rates and the risk-free rates, which we choose the three-month T-bill interest rates. Model 2 is to evaluate the movement of short-term interest rates under pure expectation theory and liquidity premium theory as well as to compare the predictability of future interest rate with the first model. Model 3 is to evaluate the effect of time under the two theories compared to the second model.
Model 1
There is a clear link between interest rates and unemployment. It can be seen on a historical chart of civilian unemployment rate and the 3-Month T-Bill interest rate. According to Figure 1-1, we can easily find out that a larger-than-expected monthly increase in unemployment rate is considered inflationary causing interest rates to fall while the decrease in unemployment rate will cause interest rates to rise. As a result, we hypothesize that there is a negative linear relationship between interest rates and unemployment.
Figure 1-1
The Regression Model tR1/4 =β0+β1*Unemployment Rate+ut
In this model, we try to use the data of the unemployment rate (Independent Variable) from Dec. 2001 to Jul. 2012 to estimate the data of the 3-Month T-Bill interest rate (Dependent Variable) from Jan. 2002 to Aug. 2012. The data descriptive shows as follows:
Interest Rate (Y) | Unemployment Rate (X) | Mean | 1.684921875 | | Mean | 6.6140625 | Standard Error | 0.148471543 | | Standard Error | 0.166659124 | Median | 1.17 | | Median | 5.8 | Mode | 0.16 | | Mode | 5.7 | Standard Deviation | 1.679763761 | | Standard Deviation | 1.885532752 | Sample Variance | 2.821606293 | | Sample Variance | 3.55523376 | Kurtosis | -0.728134924 | | Kurtosis | -1.277852708 | Skewness | 0.800334636 |
Date: Oct 10, 2012
Introduction In this paper, we establish three regression models on U.S. Treasury yields with two different maturities: three-month and one-year. Model 1 is to interpret the relationship between unemployment rates and the risk-free rates, which we choose the three-month T-bill interest rates. Model 2 is to evaluate the movement of short-term interest rates under pure expectation theory and liquidity premium theory as well as to compare the predictability of future interest rate with the first model. Model 3 is to evaluate the effect of time under the two theories compared to the second model.
Model 1
There is a clear link between interest rates and unemployment. It can be seen on a historical chart of civilian unemployment rate and the 3-Month T-Bill interest rate. According to Figure 1-1, we can easily find out that a larger-than-expected monthly increase in unemployment rate is considered inflationary causing interest rates to fall while the decrease in unemployment rate will cause interest rates to rise. As a result, we hypothesize that there is a negative linear relationship between interest rates and unemployment.
Figure 1-1
The Regression Model tR1/4 =β0+β1*Unemployment Rate+ut
In this model, we try to use the data of the unemployment rate (Independent Variable) from Dec. 2001 to Jul. 2012 to estimate the data of the 3-Month T-Bill interest rate (Dependent Variable) from Jan. 2002 to Aug. 2012. The data descriptive shows as follows:
Interest Rate (Y) | Unemployment Rate (X) | Mean | 1.684921875 | | Mean | 6.6140625 | Standard Error | 0.148471543 | | Standard Error | 0.166659124 | Median | 1.17 | | Median | 5.8 | Mode | 0.16 | | Mode | 5.7 | Standard Deviation | 1.679763761 | | Standard Deviation | 1.885532752 | Sample Variance | 2.821606293 | | Sample Variance | 3.55523376 | Kurtosis | -0.728134924 | | Kurtosis | -1.277852708 | Skewness | 0.800334636 |