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

  • Michelle L. Barnes
  • N. Aaron Pancost
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    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.

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    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 10-7.

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    Date of creation: 2010
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    Handle: RePEc:fip:fedbwp:10-7
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    1. 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.
    2. Meredith J. Beechey & Benjamin K. Johannsen & Andrew T. Levin, 2008. "Are long-run inflation expectations anchored more firmly in the Euro area than in the United States?," Finance and Economics Discussion Series 2008-23, Board of Governors of the Federal Reserve System (U.S.).
    3. 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.
    4. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
    5. Meredith 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.).
    6. Meredith J. Beechey & Jonathan H. Wright, 2008. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Finance and Economics Discussion Series 2008-39, Board of Governors of the Federal Reserve System (U.S.).
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