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Monetary policy and TIPS yields before the crisis

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  • Gerlach, Stefan
  • Moretti, Laura

Abstract

We make three points. First, the decade before the financial crisis in 2007 was characterized by a collapse in the yield on TIPS. Second, estimated VARs for the federal funds rate and the TIPS yield show that while monetary policy shocks had negligible effects on the TIPS yield, shocks to the latter had one-to-one effects on the federal funds rate. Third, these findings can be rationalized in a New Keynesian model.

Suggested Citation

  • Gerlach, Stefan & Moretti, Laura, 2011. "Monetary policy and TIPS yields before the crisis," CFS Working Paper Series 2011/22, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:201122
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    References listed on IDEAS

    as
    1. Lombardi, Marco J. & Sgherri, Silvia, 2007. "(Un)naturally low? Sequential Monte Carlo tracking of the US natural interest rate," Working Paper Series 794, European Central Bank.
    2. Beechey, Meredith J. & Wright, Jonathan H., 2009. "The high-frequency impact of news on long-term yields and forward rates: Is it real?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 535-544, May.
    3. Refet S. G├╝rkaynak & 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.
    4. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, January.
    5. Obstfeld, Maurice & Rogoff, Kenneth, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
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    Cited by:

    1. Schnell, Fabian, 2013. "Can Monetary Policy Delay the Reallocation of Capital?," Economics Working Paper Series 1329, University of St. Gallen, School of Economics and Political Science.
    2. Ronny Mazzocchi, 2013. "Monetary Policy when the NAIRI is unknown: The Fed and the Great Deviation," DEM Discussion Papers 2013/16, Department of Economics and Management.
    3. Moretti, Laura, 2014. "Monetary policy, long real yields and the financial crisis," CFS Working Paper Series 457, Center for Financial Studies (CFS).

    More about this item

    Keywords

    Monetary Policy; Long Real Interest Rates; TIPS;

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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