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Money market rates and implied CCAPM rates: some international evidence

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  • Yamin Ahmad

Abstract

New Neoclassical Synthesis models equate the instrument of monetary policy to the implied CCAPM rate arising from an Euler equation. This paper identifies monetary policy shocks within six of the G7 countries and examines the movement of money market and implied CCAPM rates. The key result is that an increase in the nominal interest rate leads to a fall in the implied CCAPM rate. Incorporating habit still yields the same result. The findings suggest that the movement of these two rates implied by the transmission mechanism of monetary policy in NNS models cannot be reconciled through the consumption Euler equation.

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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 1.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:1

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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  9. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  10. John Y. Campbell & John H. Cochrane, 1994. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," CRSP working papers 412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  14. repec:fip:fedlpr:y:1996:i:may:p:83-107:n:v.78no.3 is not listed on IDEAS
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  16. Robert G. King & Alexander L. Wolman, 1996. "Inflation targeting in a St. Louis model of the 21st century," Review, Federal Reserve Bank of St. Louis, issue May, pages 83-107.
  17. Marvin Goodfriend & Robert G. King, 2001. "The case for price stability," Working Paper 01-02, Federal Reserve Bank of Richmond.
  18. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  19. Andrew B. Abel, 1998. "Risk Premia and Term Premia in General Equilibrium," NBER Working Papers 6683, National Bureau of Economic Research, Inc.
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Cited by:
  1. Giovanni Di Bartolomeo & Lorenza Rossi, 2005. "Heterogeneous Consumers, Demand Regimes, Monetary Policy Efficacy and Determinacy," Macroeconomics 0508028, EconWPA.
  2. Camelia Ioana Ucenic & Laura Bacali, 2008. "The Impact Of It Advance Of Smes� For The Romanian Economy," Working Papers 0804, University of Crete, Department of Economics.
  3. Giovanni Di Bartolomeo & Lorenzo Rossi & Massimiliano Tancioni, 2006. "Monetary Policy under Rule-of-Thumb Consumers and External Habits: An International Empirical Comparison," Working Papers 97, University of Rome La Sapienza, Department of Public Economics.
  4. Giovanni Di Bartolomeo & Lorenza Rossi & Massimiliano Tancioni, 2009. "Monetary Policy, Rule-of-Thumb Consumers and External Habits: A G7 Comparison," Quaderni di Dipartimento 101, University of Pavia, Department of Economics and Quantitative Methods.
  5. Yamin Ahmad, 2004. "International Observations of Monetary Policy Periods," Working Papers 05-01, UW-Whitewater, Department of Economics, revised Jul 2007.
  6. Yamin Ahmad, 2004. "Reconciling the Effects of Monetary Policy Actions on Consumption Within a Heterogeneous Agent Framework," Working Papers 05-02, UW-Whitewater, Department of Economics, revised Jul 2006.
  7. Gareis, Johannes & Mayer, Eric, 2012. "Euler equations and money market interest rates: The role of monetary and risk premium shocks," W.E.P. - Würzburg Economic Papers 89, University of Würzburg, Chair for Monetary Policy and International Economics.
  8. Di Bartolomeo Giovanni & Manzo Marco, 2007. "Do tax distortions lead to more indeterminacy? A New Keynesian perspective," wp.comunite 0013, Department of Communication, University of Teramo.
  9. Giovanni Di Bartolomeo & Lorenza Rossi, 2005. "Efficacy of Monetary Policy and Limited Asset Market Participation," Macroeconomics 0508027, EconWPA.

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