Time Series Evidence on U.S. 10-Year T-Bonds, 3-Month T-Bills and the External Value of Dollar

Abstract

This paper purports to explore the long-run relation and causality between U.S. treasury securities (10-year T-bonds and 3-month T-bills), and the
external value of dollar within bivariate and multivariate cointegration frameworks. It uses monthly data from January 1973 through July 1999. The
bivariate cointegration results do not depict any long-run association and causality of the 10-year T-bond yields and the 3-month T-bill rates with the
external value of U.S. dollar. But there is evidence of two-way short-run Granger causality between in each pair of variables (both nominal and real).
The vector cointegration tests reveal that the U.S. exchange rate is driven by at least a single financial factor as a transitory component. It may be either
the 3-month T-bill rate or the 10-year T-bond yield or both