Term structure views of monetary policy
AbstractTerm structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis. Small differences in the perceived policy reaction function in VAR models of agent expectations strongly influence the relevance in the transmission mechanism of the expected short rate component of bond yields. Mean-reverting or difference-stationary characterizations of interest rates require large and volatile term premiums to match the observable term structure. However, short rate descriptions that capture shifting perceptions of long-horizon inflation evident in survey data support a more substantial term structure role for short rate expectations.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 98-07.
Date of creation: 1998
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- Sharon Kozicki & Peter Tinsley, 2005.
"Term structure transmission of monetary policy,"
Research Working Paper
RWP 05-06, Federal Reserve Bank of Kansas City.
- Kozicki, Sharon & Tinsley, P.A., 2008. "Term structure transmission of monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 19(1), pages 71-92, March.
- P. A. Tinsley, 1998. "Short rate expectations, term premiums, and central bank use of derivatives to reduce policy uncertainty," Finance and Economics Discussion Series 1999-14, Board of Governors of the Federal Reserve System (U.S.).
- Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
- Jääskelä, Jarkko & Vilmunen, Jouko, 1999. "Anticipated Monetary Policy and the Dynamic Behaviour of the Term Structure of Interest Rates," Research Discussion Papers 12/1999, Bank of Finland.
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