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Macroeconomic and monetary policy surprises and the term structure of interest rates

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  • Marcello Pericoli

    ()
    (Bank of Italy)

Abstract

The no-arbitrage affine Gaussian term structure model is used to analyse the impact of macroeconomic surprises on the nominal and the real term structure in the euro area and in the United States. We find that nominal rates are affected by surprises in economic growth, the labour market and the economic outlook in the United States, and above all by surprises in inflation in the euro area. As far as real rates are concerned, we find that they are not affected by macroeconomic surprises in the United States, but they are by surprises in inflation and monetary policy in the euro area. Inflation expectations in both areas are not systematically influenced by monetary policy surprises. In the United States forward inflation risk premia became sizeable around the start of the financial crisis at the end of the last decade and increased considerably just before the adoption of the first unconventional monetary policy measures in March 2009. By contrast, in the euro area forward inflation risk premia remained unchanged even after the adoption of the unconventional monetary policy measures in October 2008 and May 2010. In both areas long-term inflation expectations have been well anchored over the past years.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 927.

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Date of creation: Sep 2013
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Handle: RePEc:bdi:wptemi:td_927_13

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Keywords: inflation risk premium; affine term structure; Kalman filter; macroeconomic and monetary surprises;

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  1. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
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  3. Joyce, Michael A.S. & Lildholdt, Peter & Sorensen, Steffen, 2010. "Extracting inflation expectations and inflation risk premia from the term structure: A joint model of the UK nominal and real yield curves," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 281-294, February.
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  15. Grossman, Jacob, 1981. "The "Rationality" of Money Supply Expectations and the Short-Run Response of Interest Rates to Monetary Surprises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 409-24, November.
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