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Why do interest rates predict macro outcomes?: A unified theory of inflation, output, interest and policy Author info | Abstract | Publisher info | Download info | Related research | Statistics Arturo Estrella
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Several articles published in the 1990s have identified empirical relationships between the term structure of real and nominal interest rates, on one hand, and future real output and inflation, on the other. Among these are Mishkin (1990a), Estrella and Hardouvelis (1991), Bernanke and Blinder (1992) and Fuhrer and Moore (1995). These articles demonstrate the existence of empirical predictive relationships, but the underlying economic reasons for the empirical regularities remain at least partly as puzzles. This paper presents a theoretical rational expectations model that shows how monetary policy is likely to be a key determinant of these empirical regularities.
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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number
9717.
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Date of creation: 1997Date of revision:
Handle: RePEc:fip:fednrp:9717Contact details of provider: Postal: 33 Liberty Street, New York, NY 10045-0001 Email: Web page: http://www.newyorkfed.org/ More information through EDIRC
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Keywords: Forecasting ; Gross domestic product ; Inflation (Finance) ; Interest rates ; Monetary policy ; Other versions of this item:
References listed on IDEAS 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.: Ben S. Bernanke, 1993.
"Credit in the macroeconomy ,"
Quarterly Review ,
Federal Reserve Bank of New York, issue Spr, pages 50-70.
Michael Dotsey & Christopher Otrok, 1995.
"The rational expectations hypothesis of the term structure, monetary policy, and time-varying term premia ,"
Economic Quarterly ,
Federal Reserve Bank of Richmond, issue Win, pages 65-81.
[Downloadable!]
Estrella, Arturo & Hardouvelis, Gikas A, 1991.
" The Term Structure as a Predictor of Real Economic Activity ,"
Journal of Finance ,
American Finance Association, vol. 46(2), pages 555-76, June.
[Downloadable!] (restricted)
Other versions: Frederic S. Mishkin, 1990.
"What Does the Term Structure Tell Us About Future Inflation? ,"
NBER Working Papers
2626, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Mishkin, F.S., 1988.
"What Does The Term Structure Tell Us About Future Inflation? ,"
Papers
fb-_88-29, Columbia - Graduate School of Business.
Mishkin, Frederic S., 1990.
"What does the term structure tell us about future inflation? ,"
Journal of Monetary Economics ,
Elsevier, vol. 25(1), pages 77-95, January.
[Downloadable!] (restricted) Taylor, John B., 1993.
"Discretion versus policy rules in practice ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 39(1), pages 195-214, December.
[Downloadable!] (restricted)
Svensson, Lars E. O., 1997.
"Inflation forecast targeting: Implementing and monitoring inflation targets ,"
European Economic Review ,
Elsevier, vol. 41(6), pages 1111-1146, June.
[Downloadable!] (restricted)
Other versions:
Svensson, L-E-O, 1996.
"Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets ,"
Papers
615, Stockholm - International Economic Studies.
Svensson, Lars E.O., 1997.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
Seminar Papers
615, Stockholm University, Institute for International Economic Studies.
[Downloadable!] Svensson, Lars E O, 1996.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
CEPR Discussion Papers
1511, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Lars E. O. Svensson, 1997.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
NBER Working Papers
5797, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Lars E O Svensson, .
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
Bank of England working papers
56, Bank of England.
Mishkin, Frederic S, 1990.
"The Information in the Longer Maturity Term Structure about Future Inflation ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 105(3), pages 815-28, August.
[Downloadable!] (restricted)
Other versions: Fuhrer, Jeff & Moore, George, 1992.
"Monetary policy rules and the indicator properties of asset prices ,"
Journal of Monetary Economics ,
Elsevier, vol. 29(2), pages 303-336, April.
[Downloadable!] (restricted)
Other versions: Arturo Estrella & Frederic S. Mishkin, 1995.
"The term structure of interest rates and its role in monetary policy for the European Central Bank ,"
Research Paper
9526, Federal Reserve Bank of New York.
[Downloadable!]
Other versions: Fuhrer, Jeffrey C & Moore, George R, 1995.
"Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output ,"
American Economic Review ,
American Economic Association, vol. 85(1), pages 219-39, March.
William Kerr & Robert G. King, 1996.
"Limits on interest rate rules in the IS model ,"
Economic Quarterly ,
Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
[Downloadable!]
Bernanke, Ben S & Blinder, Alan S, 1992.
"The Federal Funds Rate and the Channels of Monetary Transmission ,"
American Economic Review ,
American Economic Association, vol. 82(4), pages 901-21, September.
[Downloadable!] (restricted)
Other versions: Plosser, Charles I. & Geert Rouwenhorst, K., 1994.
"International term structures and real economic growth ,"
Journal of Monetary Economics ,
Elsevier, vol. 33(1), pages 133-155, February.
[Downloadable!] (restricted)
Full
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.)
Arturo Extrella & Jeffrey C. Fuhrer, 1998.
"Dynamic inconsistencies: counterfactual implications of a class of rational expectations models ,"
Working Papers
98-5, Federal Reserve Bank of Boston.
[Downloadable!]
Other versions: Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2000.
"How stable is the predictive power of the yield curve? evidence from Germany and the United States ,"
Staff Reports
113, Federal Reserve Bank of New York.
[Downloadable!]
Other versions: Viñals, José, 2001.
"Monetary Policy Issues in a Low Inflation Environment ,"
CEPR Discussion Papers
2945, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Frank Smets, 1997.
"Financial asset prices and monetary policy: theory and evidence ,"
BIS Working Papers
47, Bank for International Settlements.
[Downloadable!]
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