Monetary policy regimes and the term structure of interest rates

Journal of Econometrics, 2013, vol. 174, issue 1, 27-43

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.

Keywords: Monetary policy; Term structure; Regime-switching model; No-arbitrage (search for similar items in EconPapers)
JEL-codes: C58 E43 G12 G17 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: Monetary Policy Regimes and the Term Structure of Interest Rates (2009)
Working Paper: Monetary Policy Regimes and the Term Structure of Interest Rates (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:174:y:2013:i:1:p:27-43

DOI: 10.1016/j.jeconom.2013.01.002

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