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Time-Varying Yield Curve Dynamics and Monetary Policy

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Author Info
Mumtaz, Haroon () (Monetary Assessment and Strategy, Bank of England)
Surico, Paolo () (Monetary Policy Committee Unit, Bank of England)

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Abstract

The dynamics of the US economy are modelled using a time-varying structural vector autoregression that incorporates information from the yield curve. We find important changes in the dynamics of macroeconomic variables such as inflation and the federal funds rate. In addition our results suggest a change in the relationship between the yield curve and macroeconomic variables. The monetary policy shocks of the early 1980s explain a large portion of the persistence of inflation and the level of the yield curve. Shocks to the level of the yield curve account for the persistence of the federal funds rate. We use our time-varying model provides to revisit the evidence on the expectations hypothesis.

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File URL: http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0023.pdf
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Publisher Info
Paper provided by Monetary Policy Committee Unit, Bank of England in its series Discussion Papers with number 23.

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Length: 34 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:mpc:wpaper:0023

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Web page: http://www.bankofengland.co.uk/publications/other/externalmpcpapers
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Related research
Keywords: Nelson-Siegel; time variation; inflation expectations; credibility building; evidence on expectations hypothesis;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
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 2009-11-8.

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