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What Drives the Term Structure in the Euro Area? Evidence from a Model with Feedback

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Author Info
Zagaglia, Paolo () (Dept. of Economics, Stockholm University)

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Abstract

I 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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Publisher Info
Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2009:12.

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Length: 54 pages
Date of creation: 13 May 2009
Date of revision:
Handle: RePEc:hhs:sunrpe:2009_0012

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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
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Web page: http://www.ne.su.se/
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Related research
Keywords: Monetary policy; yield curve; monetary transmission mechanism;

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
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

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This page was last updated on 2009-11-19.

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