What Drives the Term Structure in the Euro Area? Evidence from a Model with Feedback
AbstractI study a general-equilibrium model of the term structure where bond prices are an integral part of the monetary transmission mechanism. The model is estimated on quarterly Euro area data. I show that, besides shocks to the inflation target, also exogenous variations in money demand and bond supply can explain movements in long-term interest rates. I also find that taking into account the impact of bond yields on the macroeconomy generates superior in-sample and out-of-sample forecasts for output, inflation and for bond yields.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2009:12.
Length: 54 pages
Date of creation: 13 May 2009
Date of revision:
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
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Monetary policy; yield curve; monetary transmission mechanism;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-CBA-2009-05-23 (Central Banking)
- NEP-DGE-2009-05-23 (Dynamic General Equilibrium)
- NEP-EEC-2009-05-23 (European Economics)
- NEP-MAC-2009-05-23 (Macroeconomics)
- NEP-MON-2009-05-23 (Monetary Economics)
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- L. Marattin & P. Paesani & S. Salotti, 2011.
"Fiscal shocks, public debt, and long-term interest rate dynamics,"
wp740, Dipartimento Scienze Economiche, Universita' di Bologna.
- Marattin, Luigi & Paesani, Paolo & Salotti, Simone, 2011. "Fiscal shocks, public debt, and long-term interest rate dynamics," Working Papers 14/2011, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
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