IMF Economic Review

, Volume 65, Issue 1, pp 113–153

The Hunt for Duration: Not Waving but Drowning?

  • Dietrich Domanski
  • Hyun Song Shin
  • Vladyslav Sushko
Article

DOI: 10.1057/s41308-016-0026-9

Cite this article as:
Domanski, D., Shin, H.S. & Sushko, V. IMF Econ Rev (2017) 65: 113. doi:10.1057/s41308-016-0026-9
  • 168 Downloads

Abstract

Long-term interest rates in Europe fell sharply in 2014 to historically low levels. This development is often attributed to yield-chasing in anticipation of quantitative easing by the European Central Bank. We examine how portfolio adjustments by long-term investors aimed at containing duration mismatches may have acted as an amplification mechanism in this process. Declining long-term interest rates tend to widen the negative duration gap between the assets and liabilities of insurers and pension funds, and any attempted rebalancing by increasing asset duration results in further downward pressure on interest rates. Evidence from the German insurance sector is consistent with such an amplification mechanism.

JEL

E43 G11 G12 G22 

Supplementary material

41308_2016_26_MOESM1_ESM.zip (4 kb)
Electronic supplementary material 1 (ZIP 4 kb)

Copyright information

© International Monetary Fund 2017

Authors and Affiliations

  • Dietrich Domanski
    • 1
  • Hyun Song Shin
    • 1
  • Vladyslav Sushko
    • 1
  1. 1.Bank for International SettlementsBaselSwitzerland

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