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Conundrum or Complication: A Study of Yield Curve Dynamics under Unusual Economic Conditions and Monetary Policies

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Author Info

  • Peter Cripwell

    (School of Business, University College Dublin)

  • David Edelman

    (School of Business, University College Dublin)

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    Abstract

    The definition of the decline of long term yields in the light of increasing short term yields as a conundrum by Chairman Greenspan in February 2005 has generated a significant amount of research. This paper presents a study of yield curve dynamics over this period using economic surprise data as the diagnostic tool. Results are presented for both US and Japanese data which indicate a non-linear response of the yield curve to economic data and monetary policy over the period in question. Further, a limited model is presented that is consistent with the observations. This can lead to an explanation of the conundrum in terms of a non-linear yield response to expected long term inflation and a variable expected long term real rate.

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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200836.pdf
    File Function: First version, 2008
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    Bibliographic Info

    Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200836.

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    Length: 24 pages
    Date of creation: 12 Apr 2010
    Date of revision:
    Handle: RePEc:ucd:wpaper:200836

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    Keywords: federal reserve; term structure of interest rates; inflation;

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