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The Term Structure Of Interest Rates And The Effets Of Macroeconomics Policy

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  • TURNOVSKY, S.J.

Abstract

This paper analyzes the effects of monetary and fiscal policy shocks on the term structure of interest rates. Temporary versus permanent, unanticipated versus anticipated policy disturbances and the responses of long versus short, and real versus nominal rates are contrasted. The main results are summarized in a series of propositions. Among them, the finding that an unanticipated permanent fiscal expansion impacts more on long-term rates may help explain their observed excessive volatility. The effects of structural changes on the relative variances are also discussed, with the effect that operates through the impact on private speculative behavior being emphasized. Copyright 1989 by Ohio State University Press.
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  • Turnovsky, S.J., 1989. "The Term Structure Of Interest Rates And The Effets Of Macroeconomics Policy," Working Papers 89-03, University of Washington, Department of Economics.
    • Handle: RePEc:udb:wpaper:89-03
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    1. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-956, December.
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    6. McCafferty, Stephen & Driskill, Robert, 1980. "Problems of Existence and Uniqueness in Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 48(5), pages 1313-1317, July.
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    8. Turnovsky, Stephen J & Miller, Marcus H, 1984. "The Effects of Government Expenditure on the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 16-33, February.
    9. McCafferty, Stephen, 1986. "Aggregate Demand and Interest Rates: A Macroeconomic Approach to the Term Structure," Economic Inquiry, Western Economic Association International, vol. 24(4), pages 521-533, October.
    10. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    11. Singleton, Kenneth J, 1980. "Expectations Models of the Term Structure and Implied Variance Bounds," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1159-1176, December.
    12. Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 485-518, November.
    13. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
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    Cited by:

    1. Jagjit Chadha & Sean Holly, 2006. "Macroeconomic Models and the Yield Curve," Computing in Economics and Finance 2006 105, Society for Computational Economics.
    2. Drobyshevsky Sergey & Lugovoy Oleg & Astafieva Ekaterina & Burkova N. Yu., 2009. "Modeling the term structure of interest rates on Russian government bonds in 2000 – 2008," Research Paper Series, Gaidar Institute for Economic Policy, issue 130P.
    3. Arman Mansoorian & Mohammed Mohsin, 2004. "Monetary policy in a cash‐in‐advance economy: employment, capital accumulation, and the term structure of interest rates," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(2), pages 336-352, May.
    4. Viktor Kotlán, 2001. "Monetary policy and the term structure of interest rates in a small open economy - a model framework approach," Macroeconomics 0110003, University Library of Munich, Germany.
    5. Jesper Lindé, 2001. "Fiscal policy and interest rates in a small open economy," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 65-83, Autumn.
    6. Walter Fisher, 2000. "The Term Structure of Interest Rates in a Small Open Economy: A Stochastic Analysis," Open Economies Review, Springer, vol. 11(3), pages 261-278, July.
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    8. van Bergeijk, Peter A. G. & Berk, Jan Marc, 2000. "Is the yield curve a useful Information variable for the Eurosystem?," Working Paper Series 11, European Central Bank.
    9. Arman Mansoorian & Mohammed Mohsin, 2004. "Monetary policy in a cash-in-advance economy: employment, capital accumulation, and the term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 336-352, May.
    10. Bruno Ducoudre, 2008. "Structure par terme des taux d’intérêt et anticipations de la politique économique," Sciences Po publications info:hdl:2441/5221, Sciences Po.
    11. Maria Carme Riera i Prunera, 2003. "Deficit, human capital and economic growth dynamics," Working Papers in Economics 102, Universitat de Barcelona. Espai de Recerca en Economia.
    12. Chadha, Jagjit S. & Holly, Sean, 2010. "Macroeconomic models and the yield curve: An assessment of the fit," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1343-1358, August.
    13. van Bergeijk, Peter A. G. & Berk, Jan Marc, 2000. "Is the yield curve a useful Information variable for the Eurosystem?," Working Paper Series 0011, European Central Bank.
    14. Bruno Ducoudré, 2005. "Fiscal policy and interest rates," Documents de Travail de l'OFCE 2005-08, Observatoire Francais des Conjonctures Economiques (OFCE).
    15. Duarte, A. & Venetis, I. & Payá, I., 2004. "Curva de rendimientos y crecimiento de la producción real en la UEM: eficiencia y estabilidad predictiva./Yield Curve and Real Output Growth in the EMU: Efficiency and Predictive Stability," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 22, pages 1-21, Abril.
    16. Helen Popper, 1995. "Term premia comovement in German, Japanese, and U.S. domestic markets," Open Economies Review, Springer, vol. 6(1), pages 49-62, January.
    17. Stephen K. McNees & Geoffrey M. B. Tootell, 1991. "\"Whither New England\"?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 11-26.
    18. Cebula, Richard, 1990. "A Note on Federal Budget Deficits and the Term Structure of Real Interest Rates in the United States," MPRA Paper 50238, University Library of Munich, Germany.
    19. Kim, Kenneth A. & Limpaphayom, Piman, 1997. "The effect of economic regimes on the relation between term structure and real activity in Japan," Journal of Economics and Business, Elsevier, vol. 49(4), pages 379-392.
    20. Jakas, Vicente, 2011. "Theory and empirics of an affine term structure model applied to European data," MPRA Paper 36029, University Library of Munich, Germany.
    21. Viktor Kotlan, 2002. "Monetary Policy and the Term Spread in a Macro Model of a Small Open Economy," Working Papers 2002/01, Czech National Bank.
    22. Duarte, Agustin & Venetis, Ioannis A. & Paya, Ivan, 2005. "Predicting real growth and the probability of recession in the Euro area using the yield spread," International Journal of Forecasting, Elsevier, vol. 21(2), pages 261-277.
    23. Hedva Ber & Adi Brender & Sigal Ribon, 2004. "Are Fiscal and Monetary Policies reflected in Real Yields? Evidence from a period of Disinflation and Declining Deficit Targets," Israel Economic Review, Bank of Israel, vol. 2(2), pages 15-44.

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