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Uncertainty on monetary policy and the expectations model of the term structure of interest rates

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  • Favero, Carlo A.
  • Mosca, Federico

Abstract

In this Paper we estimate jointly a forward-looking reaction function for the three-month rate along with a term structure relationship linking the six-month interest rates to current and expected future three-month rates. In our empirical model the response of the six-month interest rates to current and future three-month interest rates is allowed to depend on uncertainty on monetary policy. The expectation theory cannot be rejected in periods of low uncertainty on monetary policy.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 71 (2001)
Issue (Month): 3 (June)
Pages: 369-375

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Handle: RePEc:eee:ecolet:v:71:y:2001:i:3:p:369-375

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  1. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  3. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1997. "A model of target changes and the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 223-249, July.
  4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  5. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
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Cited by:
  1. Junko Koeda & Ryo Kato, 2010. "The Role of Monetary Policy Uncertainty in the Term Structure of Interest Rates," IMES Discussion Paper Series 10-E-24, Institute for Monetary and Economic Studies, Bank of Japan.
  2. DURRE, Alain & GIOT, Pierre, . "An international analysis of earnings, stock prices and Bond yields," CORE Discussion Papers RP -1984, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Junko Koeda & Ryo Kato, 2010. "The Role of Uncertainty in the Term Structure of Interest Rates: A Macro-Finance Perspective," CARF F-Series CARF-F-207, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  4. Pilegaard, Rasmus & Durré, Alain & Evjen, Snorre, 2003. "Estimating risk premia in money market rates," Working Paper Series 0221, European Central Bank.
  5. Jon Faust & John H. Rogers & Eric Swanson & Jonathan H. Wright, 2003. "Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data," NBER Working Papers 9660, National Bureau of Economic Research, Inc.
  6. Mandler, Martin, 2007. "The Taylor rule and interest rate uncertainty in the U.S. 1955-2006," MPRA Paper 2340, University Library of Munich, Germany.
  7. Balázs Romhányi, 2005. "A learning hypothesis of the term structure of interest rates," Macroeconomics 0503001, EconWPA.
  8. Bernoth, Kerstin & von Hagen, Jürgen, 2003. "The performance of the Euribor futures market: Effficiency and the impact of ECB policy announcements," ZEI Working Papers B 27-2003, ZEI - Center for European Integration Studies, University of Bonn.

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