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Monetary policy and TIPS yields before the crisis

Author

Listed:
  • Gerlach Stefan

    (Central Bank of Ireland, Dublin, Ireland; and CEPR, London, UK)

  • Moretti Laura

    (Center for Financial Studies, Grueneburgplatz 1, Frankfurt 60323, Germany)

Abstract

In this paper we study the joint behavior of the federal funds rate and 10-year TIPS yields before the start of the financial crisis in 2007. We make three points. First, the decade before the crisis was characterized by a collapse in the yield on TIPS. Second, estimated VARs for the federal funds rate and the TIPS yield show that while monetary policy shocks had negligible effects on the TIPS yield, shocks to the latter had one-to-one effects on the federal funds rate. Third, these findings can be rationalized in a New Keynesian model.

Suggested Citation

  • Gerlach Stefan & Moretti Laura, 2014. "Monetary policy and TIPS yields before the crisis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 689-701, January.
    • Handle: RePEc:bpj:bejmac:v:14:y:2014:i:1:p:13:n:10
    DOI: 10.1515/bejm-2012-0154
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    References listed on IDEAS

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    1. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
    2. Lombardi, Marco J. & Sgherri, Silvia, 2007. "(Un)naturally low? Sequential Monte Carlo tracking of the US natural interest rate," Working Paper Series 794, European Central Bank.
    3. Beechey, Meredith J. & Wright, Jonathan H., 2009. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 535-544, May.
    4. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
    5. Lombardi, Marco J. & Sgherri, Silvia, 2007. "(Un)naturally low? Sequential Monte Carlo tracking of the US natural interest rate," Working Paper Series 794, European Central Bank.
    6. Maurice Obstfeld & Kenneth S. Rogoff, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
    7. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
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    Cited by:

    1. Schnell, Fabian, 2013. "Can Monetary Policy Delay the Reallocation of Capital?," Economics Working Paper Series 1329, University of St. Gallen, School of Economics and Political Science.
    2. Ronny Mazzocchi, 2013. "Monetary Policy when the NAIRI is unknown: The Fed and the Great Deviation," DEM Discussion Papers 2013/16, Department of Economics and Management.
    3. July Radev, 2017. "Monetary policy and the dynamic disequilibrium," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 96-114.
    4. Moretti, Laura, 2014. "Monetary policy, long real yields and the financial crisis," CFS Working Paper Series 457, Center for Financial Studies (CFS).

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    More about this item

    Keywords

    long-term real interest rates; monetary policy; TIPS;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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