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Time-varying yield curve dynamics and monetary policy

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  • Haroon Mumtaz

    (Bank of England, London, UK)

  • Paolo Surico

Abstract

Monetary policy, the yield curve and the private sector behaviour of the US economy are modelled as a time-varying structural vector autoregression. The monetary policy shocks of the early 1980s explain a large portion of the persistence of inflation and the level of the term structure. Changes in inflation expectations implied by the yield curve account for the persistence of the federal funds rate. Failures of the expectations hypothesis are rare, and coincided with the credibility building of Paul Volcker's Fed tenure at the beginning of the 1980s and the sequence of consecutive policy rate cuts around the time of the early 1990s recession. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1084
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File URL: http://qed.econ.queensu.ca:80/jae/2009-v24.6/
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 24 (2009)
Issue (Month): 6 ()
Pages: 895-913

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Handle: RePEc:jae:japmet:v:24:y:2009:i:6:p:895-913

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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
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Cited by:
  1. Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," IMES Discussion Paper Series 11-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
  2. Márcio Laurini & João Frois Caldeira, 2012. "Some Comments on a Macro-Finance Model with Stochastic Volatility," IBMEC RJ Economics Discussion Papers 2012-04, Economics Research Group, IBMEC Business School - Rio de Janeiro.

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