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New-Keynesian Macroeconomics and the Term Structure

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  • Bekaert, Geert
  • Cho, Seonghoon
  • Moreno Ibáñez, Antonio

Abstract

This article complements the structural New-Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro-model with unobservable processes for the inflation target and the natural rate of output which are filtered from macro and term structure data. We find that term structure information helps generate large and significant estimates of the Phillips curve and real interest rate response parameters. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target dominates the variation in the 'level factor' whereas monetary policy shocks dominate the variation in the 'slope and curvature factors'.

Suggested Citation

  • Bekaert, Geert & Cho, Seonghoon & Moreno Ibáñez, Antonio, 2006. "New-Keynesian Macroeconomics and the Term Structure," CEPR Discussion Papers 5956, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5956
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    More about this item

    Keywords

    Monetary policy; Inflation target; Term structure of interest rates; Phillips curve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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