Term structure transmission of monetary policy
Kozicki, S. and Tinsley, P.A. (2008) Term structure transmission of monetary policy. The North American Journal of Economics and Finance 19 (1), pp. 71-92. ISSN 1062-9408.
Under bond rate transmission of monetary policy, standard restrictions on policy responses to obtain determinate inflation need not apply. In periods of passive policy, bond rates may exhibit stable responses to inflation if future policy is anticipated to be active, or if time-varying term premiums incorporate inflation-dependent risk pricing. We derive a generalized Taylor Principle that requires a lower bound to the average anticipated path of forward rate responses to inflation. We also present a no-arbitrage term structure model with horizon-dependent policy and time-varying term premiums to explain mechanics and provide empirical results supporting these channels.
|Keyword(s) / Subject(s):||asymmetric information, no-arbitrage term structure, the great inflation, the Taylor Principle, determinacy of inflation, horizon-dependent expectations|
|School:||Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics|
|Date Deposited:||18 Nov 2010 14:50|
|Last Modified:||17 Apr 2013 12:33|
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