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A note on Taylor rules and the term structure

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  • Ralf Fendel

Abstract

This article augments the well-known dynamic macro-economic model of Svensson (1997) to include the term structure of interest rates, in order to support the empirical findings of Fendel and Frenkel (2005) on the information content of the term structure of interest rates for monetary policy published in Applied Economics Letters. The derived Taylor-type rule is an implicit rule that cannot be used mechanically, because it contains an additional forward-looking argument. Only under special conditions of a stable and flat yield curve and/or an aggregate demand specification that only depends on the short-term interest rate this augmented rule collapses to the class of well-known Taylor-type rules.

Suggested Citation

  • Ralf Fendel, 2009. "A note on Taylor rules and the term structure," Applied Economics Letters, Taylor & Francis Journals, vol. 16(11), pages 1097-1101.
  • Handle: RePEc:taf:apeclt:v:16:y:2009:i:11:p:1097-1101
    DOI: 10.1080/13504850701367171
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    Cited by:

    1. Rajmund Mirdala, 2014. "Interest rates and structural shocks in European transition economies," Business and Economic Horizons (BEH), Prague Development Center, vol. 10(4), pages 305-319, November.
    2. Mirdala, Rajmund, 2015. "Decomposing Euro Area Sovereign Debt Yields into Inflation Expectations and Expected Real Interest Rates," MPRA Paper 68866, University Library of Munich, Germany, revised Nov 2015.
    3. Gerlach-Kristen, Petra & Rudolf, Barbara, 2010. "Financial shocks and the maturity of the monetary policy rate," Economics Letters, Elsevier, vol. 107(3), pages 333-337, June.

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