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A macro-finance model of the term structure, monetary policy, and the economy

Listed author(s):
  • Glenn D. Rudebusch
  • Tao Wu

This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent term structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both forward-looking and backward-looking elements play important roles in macroeconomic dynamics.

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File URL: http://www.frbsf.org/economics/conferences/0403/rudebusch-wu.pdf
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Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2004)
Issue (Month): Mar ()
Pages:

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Handle: RePEc:fip:fedfpr:y:2004:i:mar:x:8
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  39. Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2003. "The macroeconomy and the yield curve: a nonstructural analysis," Working Paper Series 2003-18, Federal Reserve Bank of San Francisco.
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