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A macro-finance model of the term structure, monetary policy, and the economy

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  • Glenn Rudebusch
  • Tao Wu

Abstract

This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent term structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both forward-looking and backward-looking elements play important roles in macroeconomic dynamics.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2004)
Issue (Month): Mar ()
Pages:

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Handle: RePEc:fip:fedfpr:y:2004:i:mar:x:8

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Keywords: Interest rates ; Monetary policy;

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