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Applications of an IS-MP Model with Yield Curve

Author

Listed:
  • X. Henry Wang

    (Department of Economics, University of Missouri-Columbia, Columbia, MO 65211, USA)

  • Bill Z. Yang

    () (Department of Finance and Economics, Georgia Southern University, Statesboro, GA 30460, USA)

Abstract

This paper presents an IS-MP model with the term structure of interest rates (i.e., the yield curve) and discusses some of its applications to recent macroeconomic activities and policy issues. Specifically, the model is employed to explain (1) why a steepening yield curve may signal the subsequent economic expansion, (2) why long-term zero interest rate policy (ZIRP) may not completely avoid recessions, but disables the yield curve from being inverted to signal the following economic recession, (3) how Operation Twist (OT) may help ease the recession, in particular, under ZIRP, and what limit it may face.

Suggested Citation

  • X. Henry Wang & Bill Z. Yang, 2016. "Applications of an IS-MP Model with Yield Curve," Frontiers of Economics in China, Higher Education Press, vol. 11(1), pages 142-155, March.
  • Handle: RePEc:fec:journl:v:11:y:2016:i:1:p:142-155
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-005-016-0009-1
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    More about this item

    Keywords

    IS-MP model; yield curve; zero interest rate policy (ZIRP); Operation Twist (OT);

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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