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Money Market Rates and Implied CCAPM Rates: Some International Evidence

New Neoclassical Synthesis models equate the instrument of monetary policy to the implied CCAPM rate arising from an Euler equation. This paper identifies monetary policy shocks within six of the G7 countries and examines the movement of money market and implied CCAPM rates. The key result is that an increase in the nominal interest rate leads to a fall in the implied CCAPM rate. Incorporating habit still yields the same result. The findings suggest that the movement of these two rates implied by the transmission mechanism of monetary policy in NNS models cannot be reconciled through the consumption Euler equation.

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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number gueconwpa~02-02-06.

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Date of creation: 06 Feb 2002
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Handle: RePEc:geo:guwopa:gueconwpa~02-02-06
Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
Web page: http://econ.georgetown.edu/
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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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