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Monetary Policy, Bond Risk Premia, and the Economy

  • Peter N. Ireland

    ()

    (Boston College)

This paper develops an affine model of the term structure of interest rates in which bond yields are driven by observable and unobservable macroeconomic factors. It imposes restrictions to identify the effects of monetary policy and other structural disturbances on output, inflation, and interest rates and to decompose movements in long-term rates into terms attributable to changing expected future short rates versus risk premia. The estimated model highlights a broad range of channels through which monetary policy affects risk premia and the economy, risk premia affect monetary policy and the economy, and the economy affects monetary policy and risk premia.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 852.

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Date of creation: 01 Feb 2014
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Handle: RePEc:boc:bocoec:852
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