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Risk and Policy Shocks on the US Term Structure

  • Weber, Enzo

    ()

  • Wolters, Jürgen

    ()

We document two stylised facts of US short- and long-term interest rate data incompatible with the pure expectations hypothesis: Relatively slow adjustment to long-run relations and low contemporaneous correlation. We construct a small structural model which features three types of randomness: While a persistent monetary policy shock implies immediate identical reactions through the term structure, both a transitory policy shock and an autocorrelated risk premium allow for the sustained decoupling observed in the data. Indeed, we find important impacts and persistence of risk premia and a decomposition of policy shocks judging a larger part as transitory the longer the investment horizon.

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File URL: http://epub.uni-regensburg.de/13579/1/Paper_RiskPolicy.pdf
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Paper provided by University of Regensburg, Department of Economics in its series University of Regensburg Working Papers in Business, Economics and Management Information Systems with number 438.

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Date of creation: 16 Mar 2010
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Handle: RePEc:bay:rdwiwi:13579
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