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Monetary policy regimes and the term structure of interest rates

Bikbov, Ruslan and Chernov, Mikhail (2013) Monetary policy regimes and the term structure of interest rates. Journal of Econometrics, 174 (1). pp. 27-43. ISSN 0304-4076

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Identification Number: 10.1016/j.jeconom.2013.01.002

Abstract

US monetary policy is investigated using a regime-switching no-arbitrage term structure model that relies on inflation, output, and the short interest rate as factors. The model is complemented with a set of assumptions that allow the dynamics of the private sector to be separated from monetary policy. The monetary policy regimes cannot be estimated if the yield curve is ignored during estimation. Counterfactual analysis evaluates importance of regimes in policy and shocks for the great moderation. The low-volatility regime of exogenous shocks plays an important role. Monetary policy contributes by trading off asymmetric responses of output and inflation under different regimes.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-econom...
Additional Information: © 2013 Elsevier B.V.
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Sets: Departments > Finance
Date Deposited: 15 Mar 2013 12:02
Last Modified: 20 Mar 2019 02:08
URI: http://eprints.lse.ac.uk/id/eprint/37359

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