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The sensitivity of long-term interest rates to economic news: comment

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  • Michelle L. Barnes
  • N. Aaron Pancost

Abstract

Refet Gürkaynak, Brian Sack, and Eric Swanson (2005) provide empirical evidence that long forward nominal rates are overly sensitive to monetary policy shocks, and that this is consistent with a model where long-term inflation expectations are not anchored because agents must infer the central bank's inflation target from noisy interest rate movements. Using the same data, methodology, and model, we show that their empirical results are neither persistent nor robust to small changes in sample period or methodology. In addition, their theoretical results rely mainly on an ad hoc law of motion for the inflation target-imperfect information about the target plays only a small role in un-anchoring expectations in their model.

Suggested Citation

  • Michelle L. Barnes & N. Aaron Pancost, 2010. "The sensitivity of long-term interest rates to economic news: comment," Working Papers 10-7, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:10-7
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    File URL: http://www.bostonfed.org/economic/wp/wp2010/wp1007.htm
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    References listed on IDEAS

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    1. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
    2. Meredith J. Beechey & Benjamin K. Johannsen & Andrew T. Levin, 2011. "Are Long-Run Inflation Expectations Anchored More Firmly in the Euro Area Than in the United States?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 104-129, April.
    3. Beechey, Meredith J. & Wright, Jonathan H., 2009. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 535-544, May.
    4. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    5. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
    6. Meredith J. Beechey, 2006. "A closer look at the sensitivity puzzle: the sensitivity of expected future short rates and term premia to macroeconomic news," Finance and Economics Discussion Series 2007-06, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Liebermann, Joelle, 2011. "The Impact of Macroeconomic News on Bond Yields: (In)Stabilities over Time and Relative Importance," Research Technical Papers 7/RT/11, Central Bank of Ireland.

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    Keywords

    Interest rates ; Monetary policy;

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