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Short rate expectations, term premiums, and central bank use of derivatives to reduce policy uncertainty Author info | Abstract | Publisher info | Download info | Related research | Statistics P. A. Tinsley
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The term structure of interest rates is the primary transmission channel of monetary policy. Under the expectations hypothesis, anticipated settings of the short-term interest rate controlled by the central bank are the main determinants of nominal bond rates. Historical experience suggests that bond rates may remain relatively high even if the short-term interest rate is reduced to zero, in part due to term premiums reflecting uncertainty about future policy. Term spreads due to policy uncertainty may be reduced by central bank trading desk options that provide insurance against future deviations from an announced interest rate policy.
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number
1999-14.
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Date of creation: 1998Date of revision:
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Keywords: Interest rates ; Bonds ; Other versions of this item:
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
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repec:bep:maccon:v:6:y:2006:i:1:p:1466-1466 is not listed on IDEAS
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James Clouse & Dale Henderson & Athanasios Orphanides & David Small & Peter Tinsley, 2000.
"Monetary policy when the nominal short-term interest rate is zero ,"
Finance and Economics Discussion Series
2000-51, Board of Governors of the Federal Reserve System (U.S.).
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Macroeconomics
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repec:bep:mactop:v:3:y:2003:i:1:p:1088-1088 is not listed on IDEAS
Sharon Kozicki & P.A. Tinsley, 2001.
"Dynamic specifications in optimizing trend-deviation macro models ,"
Research Working Paper
RWP 01-03, Federal Reserve Bank of Kansas City.
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"Inflation Target Transparency and the Macroeconomy ,"
Working Papers Central Bank of Chile
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Other versions: Sharon Kozicki & P.A. Tinsley, 2002.
"Term premia : endogenous constraints on monetary policy ,"
Research Working Paper
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