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Monetary Policy Is Not Always Systematic and Data-Driven: Evidence from the Yield Curve

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  • Mr. Ales Bulir
  • Mr. Jan Vlcek

Abstract

Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.

Suggested Citation

  • Mr. Ales Bulir & Mr. Jan Vlcek, 2020. "Monetary Policy Is Not Always Systematic and Data-Driven: Evidence from the Yield Curve," IMF Working Papers 2020/004, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/004
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    More about this item

    Keywords

    WP; rate; interest rate; Nelson-Siegel yield curve model; inflation expectation; yield curve movement; Monetary transmission; yield curve; rule-based monetary policy; inflation-targeting country; monetary policy innovation; monetary policy decision; inflation stabilization; Inflation; Exchange rates; Inflation targeting; Central bank policy rate; Sub-Saharan Africa; Africa; Global;
    All these keywords.

    JEL classification:

    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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