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The Yield Curve Slope and Monetary Policy Innovations

Author

Listed:
  • Gamber, Edward N.

    (Department of Economics and Business, Lafayette College)

  • Joutz, Frederick L.

    (Department of Economics, The George Washington University)

Abstract

We separate changes of the federal funds rate into two components; one reflects the Fed's superior forecasts about the state of the economy and the other component reflects the Fed's reaction to the public's forecast about the state of the economy. Romer and Romer (2000) found that the Fed reveals information about inflation when it tightens monetary policy. Their research has implications for measuring monetary policy as well. When the Fed raises short-term interest rates it leads to some combination of increased inflationary expectations and an increased real rate. In this paper we estimate a structural VAR that allows us to separate out (identify) components of federal funds changes that are due to inflationary expectations (thus neutral) and that part which is contractionary. Our measure of monetary policy is the part of federal funds changes that exclude the Fed's revelation of its asymmetric information about future inflation.

Suggested Citation

  • Gamber, Edward N. & Joutz, Frederick L., 2005. "The Yield Curve Slope and Monetary Policy Innovations," Economics Series 171, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:171
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    File URL: https://irihs.ihs.ac.at/id/eprint/1631
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    References listed on IDEAS

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    Cited by:

    1. Edward N Gamber & Julie K Smith, 2020. "Monetary policy and the yield curve," Economics Bulletin, AccessEcon, vol. 40(1), pages 407-424.

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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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