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2007•RePEc: Research Papers in EconomicsRequires access

Incomplete markets and the yield curve

Xavier Ragot, François Le Grand, Édouard Challe

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Abstract

The bond supply affects the yield curve through a wealth effect. We prove notably that a larger volume of titles shifts the level of the yield curve downward and increases its slope. Finally, credit constraints allow idiosyncratic and aggregate risks to interact and thus make interest rates more volatile.

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The bond supply affects the yield curve through a wealth effect. We prove notably that a larger volume of titles shifts the level of the yield curve downward and increases its slope. Finally, credit constraints allow idiosyncratic and aggregate risks to interact and thus make interest rates more volatile.

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Available abstract

The bond supply affects the yield curve through a wealth effect. We prove notably that a larger volume of titles shifts the level of the yield curve downward and increases its slope. Finally, credit constraints allow idiosyncratic and aggregate risks to interact and thus make interest rates more volatile.

Key concepts: Yield curve, Yield (engineering), Economics, Aggregate (composite), Bond, Econometrics, Volume (thermodynamics), Interest rate

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