Monetary Policy Surprises, Credit Costs. and. Economic Activity

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Monetary Policy Surprises, Credit Costs. and. Economic Activity"

Transcription

1 Monetary Policy Surprises, Credit Costs and Economic Activity Mark Gertler and Peter Karadi NYU and ECB BIS, March 215 The views expressed are those of the authors and do not necessarily reflect the offi cial views of the ECB or the Eurosystem

2 Conventional Monetary Policy Transmission 1. Aggregate spending depends on current and expected future real interest rates 2. Central bank controls nominal short rate i t 3. Nominal rigidities imply control over current and expected future short real rates, at least for some horizon. 4. Expectations hypothesis ) policy transmitted via yield curve Loglinear approx of m period zero-coupon gov t bond ) i m m 1 1 t = E t m f X j= i t+j g + m t m t term premium 1

3 Two Elaborations 1. Forward Guidance: (a) CB a ects yield curve by managing expectations of future path of i t : 2. Credit Channel(e.g., Bernanke and Gertler 1995) (a) With credit market frictions, to a rst order i b t = i t + x t i b t private borrowing rate; x t external nance premium (credit spread) (b) Monetary policy a ects credit spreads as well as risk free rate i. i t " ) tightening of credit frictions ) x t " ii. vice versa for i t # 2

4 What We Do Analyze joint response of economic activity and various credit cost measures to "exogenous" monetary policy surprises =) To do so, we combine: Traditional "money shock" VAR analysis (e.g. BB 1991, CEE 1996) High frequency identi cation (HFI) of policy surprises on interest rates (e.g, Kuttner, 21, GSS, 25) Policy surprises: Unexpected changes in interest rate futures on FOMC dates Use HFI measures of policy surprises as "external instruments" in monthly VARs: 3

5 Why We Do It This Way Two problems with identi cation of policy shocks in standard VARs Simultaneity between policy indicator and other nancial variables Measure of policy shocks do not incorporate shocks to foward guidance: HFI addresses both simultaneity and forward guidance issues Policy shocks are surprises in interest rate futures on FOMC dates Dependent variables are same-day responses of various asset returns. Permits incorporating use of forward guidance in policy action (GSS 25) Innovation in non-current futures rates re ects revision in beliefs about future path of rates 4

6 Why We Do It This Way (cont) Limitations to HFI With daily data di cult to identify the persistence of the e ects of policy shocks on nancial variables Can t identify joint response with economic activity Our approach: combines strengths of VAR and HFI methodologies By using futures rate surprises as external instruments, exploits HFI approach to identify exogenous policy surprises Uses VAR to trace out full dynamic response of real and nancial variables. 5

7 Preview of Main Findings 1. FF futures surprises ) responses in output and in ation consistent conventional monetary transmission mechanism and with existing VAR literature. 2. "Modest" movements in short rates ) "large" movements in real credit costs (a) Due mainly to reaction of term premia and credit spreads (b) Evidence against baseline model of monetary policy transmission. i. Still evidence for sticky prices: real rates move one for one with nominal ii. Need to adjust model to account for term premia and credit spread responses. 3. Forward guidance important to strength of policy transmission. 6

8 Methodology VAR with external instruments (Stock-Watson (212), Mertens-Ravn 213). Structural autoregressive model Reduced form model with B j = A 1 C j ; S = A 1 AY t = Y t = px j=1 px j=1 C j Y t B j Y t u t = S" t j + " t j + u t 7

9 Methodology (cont ) y p t Y t monetary policy indicator; " p t structural policy shock s column in S corresponding to impact on each element of u t of " p t To compute the impulse response to a monetary shock, need to estimate Y t = px j=1 B j Y t j + s" p t B j obtained via least squares; need restrictions to identify s Standard restriction: elements of s are zero except the one corresponding to the reduced form residual for the policy instrument. 8

10 External Instruments Z t vector of instrumental variables " p t vector of structural shocks not including policy shock Z t must satisfy E[" p t Z t] = E[" p t Z t ] = 9

11 External Instruments (con t) u p t u q t reduced form residual from equation for policy indicator reduced form residual for variable q 6= p: s q " p t response of uq t to "p t : Goal: Identify s q which gives responses of u q t to the policy shock "p t Use 2SLS: Three steps: Obtain u t from OLS regression of reduced form VAR To identify variation in u p t due to "p t ;regress up t on Z t To obtain estimates of s q ; regress u q t on up t ; using the tted values c u p t from the rst stage regressions as instruments for u p t. 1

12 Daily Fed Funds Futures Surprises as Instruments f t+j settlement price on FOMC day in month t for FF futures expiring in t + j f t+i; 1 settlement price on day prior to FOMC meeting i u t+i surprise in target rate expected for month t + j on FOMC day in month t : i u t+j = f t+j f t+j; 1 i u t shock to current funds rate target (Kuttner, 211) for j 1; i u t+j shock to target expected at t + j: (GSS, 25) i u t+j measured within 3 minute window of FOMC decision Isolates FOMC news (GSS, 25). 11

13 Policy Indicator (vs. Policy Instrument) Monthly VARs with IP, CPI, various interest rates and a policy indicator Policy indicator ( i.e., the "policy relevant" interest rate) Re ects stance of monetary policy, encompassing forward guidance. Residual incorporates policy shocks, including shocks to forward guidance Conceptually preferred indiciator: two year government bond rate View that FOMC operates with 2 yr horizon for Funds rate, (e.g. Swanson- Williams, 212, Hanson-Stein, 212) We use one year government bond rate as policy indicator for pragmatic reasons Avoids potential weak instruments problem Results robust to using two year rate as a policy indicator 12

14 Policy Indicator and Exogenous Policy Surprises Given monthly frequency, return on 1yr govt bond rate i 12 t i 12 t = 1 12 E tf Reduced form VAR residual for i 12 t i 12 t E t 1 i 12 t = X j= 11X j= i t+j g + 12 t equivalent to: fe t i t+j E t 1 i t+j g + 12 t E t 1 12 t Instrumenting with FF, ED rate surprises isolates orthogonal movements i.e, Isolates orthogonal surprises in current and expected future short rates. Policy shock is linear combination of surprises in di erent FF and ED futures 13

15 Data Description Sample: 1979:9-212:6 Economic variables: IP, CPI Interest rates Gov t bond yields: 1yr (policy indicator), 2yr, 5 yr, 1 yr; 1m FF rate Baa spread, Gilchrist/Zakrasjek excess bond premium Mortgage.spread, commercial paper spread Instruments: available 1991:1 through 212:6 1m, 3m ahead FF futures; 6m, 9m, year ahead 3 month ED futures We use 3m ahead FF futures as baseline (best instrument choice) Results robust to other instrument combinations 14

16 Figure 1: 1 year rate shock with excess bond premium 1 year rate 1 year rate.4.2 External Instruments.4.2 Cholesky CPI.2 CPI IP IP Excess Bond Premium.2 Excess Bond Premium First stage regression: F: robust F: R2: 7.76 Adjusted R2: 7.4

17 Figure 2: 1 year rate shock with corporate and mortgage premia.6 1 year rate.1 CPI IP.15 Excess Bond Premium Mortgage spread Commercial Paper spread (3 months) First stage regression: F: robust F: R2: 7.78 Adjusted R2: 7.42

18 Figure 3: 1 year rate shock: Response of other interest rates Federal Funds Rate 1 year rate year rate year rate year rate x5 forward First stage regression: F: robust F: R2: 7.78 Adjusted R2: 7.42

19 Figure 4: 1 year rate shock: Response of real rates and breakeven inflation rates year rate Real Nominal year breakeven inflation rate year rate.1 5 year breakeven inflation rate year rate.1 1 year breakeven inflation rate First stage regression: F: robust F: R2: 7.78 Adjusted R2: 7.42

20 Calculating Term Premia and Excess Return Responses Term premium on m period gov t bond, m t : m t = i m t Obtain response of i m t and i t from VAR Use path of i t to compute E t f m P 1 j= Excess return on private m period bond, t m 1 m E X1 tf i t+j g j= i t+j g for each t: i mp t t = i mp t = (i mp t rate on m period private bond m 1 m E X1 tf i t+j g j= i m t ) + m t 15

21 Figure 5: 1 year rate shock: Response of term premia and excess premia 1 year rates 2 year rates.2 Term premium Nominal rates year rates 1 year rates Corporate bond Mortgage.2 Combined excess premium Nominal rates First stage regression: F: robust F: R2: 7.78 Adjusted R2: 7.42

22 Figure 7: Federal Funds rate shock 1 year rate CPI.2 1 year FF IP Excess Bond Premium Mortgage spread Commercial Paper spread (3 months) year rate.2 1 year rate First stage regression: F: robust F: 14.4 R2: 8.95 Adjusted R2: 8.59

23 Table 4: Effects of private information on tight window monetary policy surprise ( ) (1) (2) (3) VARIABLES FF1 FF4 ED4 π.254*.195**.29 (1.818) (2.126) (1.632) dy **.299** (1.418) (2.39) (2.511) π -.435** -.342*** (-2.588) (-2.861) (-1.591) dy (-.449) (-.741) (-1.39) Observations R-squared F-statistic prob > F Robust t-statistics in parentheses *** p<.1, ** p<.5, * p<.1

24 Figure 1: 1 year rate shock with instruments without the Fed s private information, year rate CPI.2 FF4 FF4, No Private Info IP.2 Excess Bond Premium Mortgage spread Commercial Paper spread (3 months) year rate 1 year rate First stage regression: F: 5.25 robust F: 6.77 R2: 2.53 Adjusted R2: 2.5

25 A Model Consistent with Facts: Gertler-Karadi 212 Baseline: conventional monetary DSGE (CEE 25) Banks intermediate funding of private securities and govt bonds Financial frictions introduce balance sheet constraints on banks ) Limits to arbitrage that depend inversely on balance sheet strength Frictions greater for private securities than for gov t bonds Contractionary monetary policy shock increases both term premia and credit spreads Tightening weakens bank balance sheets ) Tightens limits to arbitrage, raising term premia and credit spreads Ampli es impact on economy. 17

26 Concluding Remarks VAR with FF/ED futures as external instruments used to study monetary policy transmission Key ndings: Responses of output and in ation consistent with earlier VAR analysis "Modest" movements in short rates ) "large" movements in credit costs Due to responses of term premia and credit spreads Forward guidance enhances impact of policy Main implication: need to modify conventional model to allow for term premia and credit spread e ects. 18

27 Figure 8: 2 year rate shock with a full set of GSS instruments 1 year rate CPI.2 1 year, FF4 2 year, GSS IP Excess Bond Premium Mortgage spread Commercial Paper spread (3 months) year rate.2 1 year rate First stage regression: F: 2.65 robust F: 3.99 R2: 4.99 Adjusted R2: 3.1

28 Figure 9: 1 year rate shock, year rate CPI IP Excess Bond Premium Mortgage spread Commercial Paper spread (3 months) year rate.2 1 year rate First stage regression: F: robust F: R2: 7.81 Adjusted R2: 7.37

29 Table 1: Yield effects of monetary policy shocks (event study, daily, ) Indicator & (1) (2) (3) (4) (5) (6) (7) Instruments 2 yr 5yr 1yr 3yr 5x5 forw baa + Mortg. + FF,FF1.367***.233** (3.467) (2.241) (1.53) (.13) (-.388) (1.475) (1.445) 1YR,FF1.739***.469*** (8.493) (3.94) (1.173) (.13) (-.379) (1.544) (1.416) 1YR,FF4.88***.683***.375***.145* **.427** (15.81) (8.21) (4.41) (1.694) (.614) (2.176) (2.239) 2YR, FF4.778***.432***.169* **.483** (11.8) (5.36) (1.839) (.72) (1.986) (2.141) 2YR, GSS.878***.575***.234***.271***.231*.35** (18.7) (11.84) (4.139) (3.61) (1.844) (2.49) Robust z-statistics in parentheses *** p<.1, ** p<.5, * p<.1 QE dates and crisis period are excluded, 188 observations + : 2-week cumulative changes

30 Table 2: TIPS and breakeven inflation effects of monetary policy shocks (daily event study, ) Indicator & (1) (2) (3) (4) (5) (6) Instruments TIPS 2yr TIPS 5yr TIPS 1yr Bkeven 2yr Bkeven 5yr Bkeven 1yr FF, FF **.149** ** (1.348) (2.217) (2.287) (.596) (-1.553) (-2.81) 1YR, FF1.8***.639***.384***.282* (4.141) (7.66) (6.121) (1.913) (-.62) (-1.165) 1YR, FF4.84***.565***.315*** (5.171) (5.763) (4.136) (.474) (.269) (-.815) 2YR, FF4.759***.618***.344*** (5.9) (4.32) (3.592) (.525) (.269) (-.743) 2YR, GSS.754***.63***.462***.196**.189**.11* (7.749) (8.394) (9.35) (1.981) (2.165) (1.818) Robust z-statistics in parentheses *** p<.1, ** p<.5, * p<.1 QE dates and crisis period are excluded, 58 (2yr), 1 observations + : 2-week cumulative changes

31 Table 3: Effects of high-frequency instruments on the first stage residuals of the 4 variable VAR (monthly, ) (1) (2) (3) (4) (5) (6) (7) (8) (9) (1) VARIABLES 1YR 1YR 1YR 1YR 1YR 2YR 2YR 2YR 2YR 2YR FF1.89*** **.174 (4.44) (1.129) (2.116) (.462) FF *** 1.266*** 1.243***.779** 1.13*** 1.379*** (4.184) (4.224) (3.68) (2.272) (2.643) (3.361) ED (1.244) (.859) ED *** ** (-2.635) (-2.448) ED4.624** ** ** (2.39) (-.476) (2.493) (.923) (-.863) (2.465) Observations R-squared F-statistic Robust t-statistics in parentheses *** p<.1, ** p<.5, * p<.1

32 Term Premia Responses Using Expectations Data Term premia responses may re ect "non-rational" forecasts of future short rates Can evaluate using survey data on expectations: Blue Chip Economic Indicators survey: 3 month T-bill rate forecasts up to 6 quarters ahead; available 1983:3-212:6. Results: At longer horizons (5-1 years): Cannot reject that market expectations of the future path of the Funds rate are "rational"; i.e. consistent with the impulse responses of the Funds rate. Term premium e ects not due to "irrational expectations." As shorter horizons (1-2) years "Over-reaction" of expectations could explain term premium e ects Data is too noisy to say for sure. 16

33 Figure 6: 1 year rate shock: Response of private sector expectations, year rate (FF) Expectations Nominal Implied riskless rates year rate (FF) year rate (FF).2 1 year rate (FF) First stage regression: F: robust F: R2: 7.78 Adjusted R2: 7.42

Long-Term Debt Pricing and Monetary Policy Transmission under Imperfect Knowledge

Long-Term Debt Pricing and Monetary Policy Transmission under Imperfect Knowledge Long-Term Debt Pricing and Monetary Policy Transmission under Imperfect Knowledge Stefano Eusepi, Marc Giannoni and Bruce Preston The views expressed are those of the authors and are not necessarily re

More information

Chapter 1. Vector autoregressions. 1.1 VARs and the identi cation problem

Chapter 1. Vector autoregressions. 1.1 VARs and the identi cation problem Chapter Vector autoregressions We begin by taking a look at the data of macroeconomics. A way to summarize the dynamics of macroeconomic data is to make use of vector autoregressions. VAR models have become

More information

Discussion of Faia "Optimal Monetary Policy with Credit Augmented Liquidity Cycles"

Discussion of Faia Optimal Monetary Policy with Credit Augmented Liquidity Cycles Discussion of Faia "Optimal Monetary Policy with Credit Augmented Liquidity Cycles" Ander Perez (U Pompeu Fabra) November 2008 Ander Perez (U Pompeu Fabra) () Discussion: Faia November 2008 1 / 11 (Related)

More information

Monetary Policy and Long-term Interest Rates

Monetary Policy and Long-term Interest Rates Monetary Policy and Long-term Interest Rates Shu Wu The University of Kansas First Draft: July 2004 This version: March 2005 Abstract This paper documents some new empirical results about the monetary

More information

THE FORWARD GUIDANCE PUZZLE

THE FORWARD GUIDANCE PUZZLE DISCUSSION OF: THE FORWARD GUIDANCE PUZZLE BY DEL NEGRO, GIANNONI AND PATTERSON Jón Steinsson Columbia University October 25 Jon Steinsson Forward Guidance Puzzle October 25 / 2 THREE PARTS Empirical investigation

More information

CAPM, Arbitrage, and Linear Factor Models

CAPM, Arbitrage, and Linear Factor Models CAPM, Arbitrage, and Linear Factor Models CAPM, Arbitrage, Linear Factor Models 1/ 41 Introduction We now assume all investors actually choose mean-variance e cient portfolios. By equating these investors

More information

Discussion of Capital Injection, Monetary Policy, and Financial Accelerators

Discussion of Capital Injection, Monetary Policy, and Financial Accelerators Discussion of Capital Injection, Monetary Policy, and Financial Accelerators Karl Walentin Sveriges Riksbank 1. Background This paper is part of the large literature that takes as its starting point the

More information

Financial predictors of real activity and the financial accelerator B

Financial predictors of real activity and the financial accelerator B Economics Letters 82 (2004) 167 172 www.elsevier.com/locate/econbase Financial predictors of real activity and the financial accelerator B Ashoka Mody a,1, Mark P. Taylor b,c, * a Research Department,

More information

Stock market booms and real economic activity: Is this time different?

Stock market booms and real economic activity: Is this time different? International Review of Economics and Finance 9 (2000) 387 415 Stock market booms and real economic activity: Is this time different? Mathias Binswanger* Institute for Economics and the Environment, University

More information

NBER WORKING PAPER SERIES THE FED AND INTEREST RATES: A HIGH-FREQUENCY IDENTIFICATION. John H. Cochrane Monika Piazzesi

NBER WORKING PAPER SERIES THE FED AND INTEREST RATES: A HIGH-FREQUENCY IDENTIFICATION. John H. Cochrane Monika Piazzesi NBER WORKING PAPER SERIES THE FED AND INTEREST RATES: A HIGH-FREQUENCY IDENTIFICATION John H. Cochrane Monika Piazzesi Working Paper 8839 http://www.nber.org/papers/w8839 NATIONAL BUREAU OF ECONOMIC RESEARCH

More information

Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom

Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom Ambrogio Cesa-Bianchi Gregory Thwaites Alejandro Vicondoa August 2, 216 Abstract This paper constructs a new

More information

The Impact of Interest Rate Shocks on the Performance of the Banking Sector

The Impact of Interest Rate Shocks on the Performance of the Banking Sector The Impact of Interest Rate Shocks on the Performance of the Banking Sector by Wensheng Peng, Kitty Lai, Frank Leung and Chang Shu of the Research Department A rise in the Hong Kong dollar risk premium,

More information

Chapter 6. Econometrics. 6.1 Introduction. 6.2 Univariate techniques Transforming data

Chapter 6. Econometrics. 6.1 Introduction. 6.2 Univariate techniques Transforming data Chapter 6 Econometrics 6.1 Introduction We re going to use a few tools to characterize the time series properties of macro variables. Today, we will take a relatively atheoretical approach to this task,

More information

Fiscal and Monetary Policy in Australia: an SVAR Model

Fiscal and Monetary Policy in Australia: an SVAR Model Fiscal and Monetary Policy in Australia: an SVAR Model Mardi Dungey and Renée Fry University of Tasmania, CFAP University of Cambridge, CAMA Australian National University September 21 ungey and Fry (University

More information

11.2 Monetary Policy and the Term Structure of Interest Rates

11.2 Monetary Policy and the Term Structure of Interest Rates 518 Chapter 11 INFLATION AND MONETARY POLICY Thus, the monetary policy that is consistent with a permanent drop in inflation is a sudden upward jump in the money supply, followed by low growth. And, in

More information

Analyzing the Effect of Change in Money Supply on Stock Prices

Analyzing the Effect of Change in Money Supply on Stock Prices 72 Analyzing the Effect of Change in Money Supply on Stock Prices I. Introduction Billions of dollars worth of shares are traded in the stock market on a daily basis. Many people depend on the stock market

More information

In ation Tax and In ation Subsidies: Working Capital in a Cash-in-advance model

In ation Tax and In ation Subsidies: Working Capital in a Cash-in-advance model In ation Tax and In ation Subsidies: Working Capital in a Cash-in-advance model George T. McCandless March 3, 006 Abstract This paper studies the nature of monetary policy with nancial intermediaries that

More information

1-6-1, Nishiwaseda, Shinjuku-ku, Tokyo 169-8050 JAPAN

1-6-1, Nishiwaseda, Shinjuku-ku, Tokyo 169-8050 JAPAN Waseda Economics Working Paper Series Monetary Policy and the Yield Curve in Japan: VAR Approach with Sign Restrictions NAKAZONO, Yoshiyuki Graduate School of Economics Waseda University Graduate School

More information

The Information Content of Surprise Changes in the Fed Funds Futures Rate

The Information Content of Surprise Changes in the Fed Funds Futures Rate The Information Content of Surprise Changes in the Fed Funds Futures Rate Wei Li October 17, 2014 Job Market Paper Abstract This paper attempts to explain a price puzzle associated with surprise changes

More information

y t by left multiplication with 1 (L) as y t = 1 (L) t =ª(L) t 2.5 Variance decomposition and innovation accounting Consider the VAR(p) model where

y t by left multiplication with 1 (L) as y t = 1 (L) t =ª(L) t 2.5 Variance decomposition and innovation accounting Consider the VAR(p) model where . Variance decomposition and innovation accounting Consider the VAR(p) model where (L)y t = t, (L) =I m L L p L p is the lag polynomial of order p with m m coe±cient matrices i, i =,...p. Provided that

More information

EXCHANGE RATE PASS-THROUGH TO INFLATION IN MONGOLIA

EXCHANGE RATE PASS-THROUGH TO INFLATION IN MONGOLIA 1 EXCHANGE RATE PASS-THROUGH TO INFLATION IN MONGOLIA by Gan-Ochir Doojav doojav_ganochir@mongolbank.mn February 2009 Economist at the Monetary Policy and Research Department of the Bank of Mongolia. Opinions

More information

Do Commodity Price Spikes Cause Long-Term Inflation?

Do Commodity Price Spikes Cause Long-Term Inflation? No. 11-1 Do Commodity Price Spikes Cause Long-Term Inflation? Geoffrey M.B. Tootell Abstract: This public policy brief examines the relationship between trend inflation and commodity price increases and

More information

A Macro-Financial Analysis of the Euro Area Sovereign Bond Market (Redenomination Risk in the Euro Area Bond Market)

A Macro-Financial Analysis of the Euro Area Sovereign Bond Market (Redenomination Risk in the Euro Area Bond Market) A Macro-Financial Analysis of the Euro Area Sovereign Bond Market (Redenomination Risk in the Euro Area Bond Market) Hans Dewachter a;b Leonardo Iania a;c Marco Lyrio d Maite de Sola Perea a a NBB, b KUL,

More information

QE Equivalence to Interest Rate Policy: Implications for Exit

QE Equivalence to Interest Rate Policy: Implications for Exit QE Equivalence to Interest Rate Policy: Implications for Exit Samuel Reynard Preliminary Draft - January 13, 2015 Abstract A negative policy interest rate of about 4 percentage points equivalent to the

More information

Discussion: Realtime forecasting with macro-finance models in the presence of a zero lower bound by Lewis and Krippner

Discussion: Realtime forecasting with macro-finance models in the presence of a zero lower bound by Lewis and Krippner Discussion: Realtime forecasting with macro-finance models in the presence of a zero lower bound by Lewis and Krippner Torsten Ehlers Bank for International Settlements The opinions represent those of

More information

Research Division Federal Reserve Bank of St. Louis Working Paper Series

Research Division Federal Reserve Bank of St. Louis Working Paper Series Research Division Federal Reserve Bank of St. Louis Working Paper Series Comment on "Taylor Rule Exchange Rate Forecasting During the Financial Crisis" Michael W. McCracken Working Paper 2012-030A http://research.stlouisfed.org/wp/2012/2012-030.pdf

More information

10. Fixed-Income Securities. Basic Concepts

10. Fixed-Income Securities. Basic Concepts 0. Fixed-Income Securities Fixed-income securities (FIS) are bonds that have no default risk and their payments are fully determined in advance. Sometimes corporate bonds that do not necessarily have certain

More information

The Credit Spread Cycle with Matching Friction

The Credit Spread Cycle with Matching Friction The Credit Spread Cycle with Matching Friction Kevin E. Beaubrun-Diant and Fabien Tripier y June 8, 00 Abstract We herein advance a contribution to the theoretical literature on nancial frictions and show

More information

Keywords: High Frequency Data, Identification, Vector Autoregression, Exchange Rates, Monetary Policy. JEL Classifications: C32, E52, F30.

Keywords: High Frequency Data, Identification, Vector Autoregression, Exchange Rates, Monetary Policy. JEL Classifications: C32, E52, F30. EUROPEAN CENTRAL BANK WORKING PAPER SERIES WORKING PAPER NO 167 IDENTIFYING THE EFFECTS OF MONETARY POLICY SHOCKS ON EXCHANGE RATES USING HIGH FREQUENCY DATA BY JON FAUST, JOHN H ROGERS, ERIC SWANSON AND

More information

Optimal Fiscal Policies. Long Bonds and Interest Rates under Incomplete Markets. Bank of Spain, February 2010

Optimal Fiscal Policies. Long Bonds and Interest Rates under Incomplete Markets. Bank of Spain, February 2010 Optimal Fiscal Policies. Long Bonds and Interest Rates under Incomplete Markets Bank of Spain, February 2010 1 In dynamic models, optimal scal policy and debt management should be jointly determined. Optimality

More information

The comovement of US and German bond markets

The comovement of US and German bond markets The comovement of US and German bond markets Tom Engsted and Carsten Tanggaard The Aarhus School of Business, Fuglesangs alle 4, DK-8210 Aarhus V. E-mails: tom@asb.dk (Engsted); cat@asb.dk (Tanggaard).

More information

Table 1: Unit Root Tests KPSS Test Augmented Dickey-Fuller Test with Time Trend

Table 1: Unit Root Tests KPSS Test Augmented Dickey-Fuller Test with Time Trend Table 1: Unit Root Tests KPSS Test Augmented Dickey-Fuller Test with Time Trend with Time Trend test statistic p-value test statistic Corn -2.953.146.179 Soy -2.663.252.353 Corn -2.752.215.171 Soy -2.588.285.32

More information

Topic 2. Incorporating Financial Frictions in DSGE Models

Topic 2. Incorporating Financial Frictions in DSGE Models Topic 2 Incorporating Financial Frictions in DSGE Models Mark Gertler NYU April 2009 0 Overview Conventional Model with Perfect Capital Markets: 1. Arbitrage between return to capital and riskless rate

More information

18 ECB FACTORS AFFECTING LENDING TO THE PRIVATE SECTOR AND THE SHORT-TERM OUTLOOK FOR MONEY AND LOAN DYNAMICS

18 ECB FACTORS AFFECTING LENDING TO THE PRIVATE SECTOR AND THE SHORT-TERM OUTLOOK FOR MONEY AND LOAN DYNAMICS Box 2 FACTORS AFFECTING LENDING TO THE PRIVATE SECTOR AND THE SHORT-TERM OUTLOOK FOR MONEY AND LOAN DYNAMICS The intensification of the financial crisis in the fourth quarter of 211 had a considerable

More information

The Sensitivity of Long-Term Interest Rates to Economic News: Comment

The Sensitivity of Long-Term Interest Rates to Economic News: Comment No. 10-7 The Sensitivity of Long-Term Interest Rates to Economic News: Comment Michelle L. Barnes and N. Aaron Pancost Abstract: Refet Gürkaynak, Brian Sack, and Eric Swanson (2005) provide empirical evidence

More information

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Monetary Policy and Long-Term Real Rates Samuel G. Hanson and Jeremy

More information

Interpreting Market Responses to Economic Data

Interpreting Market Responses to Economic Data Interpreting Market Responses to Economic Data Patrick D Arcy and Emily Poole* This article discusses how bond, equity and foreign exchange markets have responded to the surprise component of Australian

More information

Impact of ECB communication on high frequency response of EUR-USD exchange rate with a comparison in pattern before, during and after 2008 recession

Impact of ECB communication on high frequency response of EUR-USD exchange rate with a comparison in pattern before, during and after 2008 recession Impact of ECB communication on high frequency response of EUR-USD exchange rate with a comparison in pattern before, during and after 2008 recession Jin Deng 1. Introduction I investigate the high-frequency

More information

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES Chapter - The Term Structure of Interest Rates CHAPTER : THE TERM STRUCTURE OF INTEREST RATES PROBLEM SETS.. In general, the forward rate can be viewed as the sum of the market s expectation of the future

More information

Monetary Policy, Labor Market Rigidities and Oil Price Shocks. A Research Proposal by. Olivier J. Blanchard and Jordi Galí

Monetary Policy, Labor Market Rigidities and Oil Price Shocks. A Research Proposal by. Olivier J. Blanchard and Jordi Galí Monetary Policy, Labor Market Rigidities and Oil Price Shocks A Research Proposal by Olivier J. Blanchard and Jordi Galí Banque de France May 11, 2006 Motivation Oil Prices Large, persistent uctuations

More information

4. Only one asset that can be used for production, and is available in xed supply in the aggregate (call it land).

4. Only one asset that can be used for production, and is available in xed supply in the aggregate (call it land). Chapter 3 Credit and Business Cycles Here I present a model of the interaction between credit and business cycles. In representative agent models, remember, no lending takes place! The literature on the

More information

The Microstructure of Currency Markets

The Microstructure of Currency Markets The Microstructure of Currency Markets Martin D. D. Evans Department of Economics Georgetown University and NBER July 2010 Abstract This article summarizes exchange-rate research using microstructure models.

More information

Monetary policy strategy: Old issues and new challenges

Monetary policy strategy: Old issues and new challenges Monetary policy strategy: Old issues and new challenges Joint Deutsche Bundesbank/Federal Reserve Bank of Cleveland Conference Frankfurt am Main, 6-7 June 2007 Fiorella de Fiore European Central Bank Discussion

More information

Can Information Be Locked-Up? Informed Trading Ahead of Macro-News Announcements

Can Information Be Locked-Up? Informed Trading Ahead of Macro-News Announcements Can Information Be Locked-Up? Informed Trading Ahead of Macro-News Announcements Gennaro Bernile, Jianfeng Hu, and Yuehua Tang Singapore Management University Presented by Jianfeng Hu 2015 Asian Bureau

More information

WORKING PAPER CENTRAL BANK OF ICELAND. A Variance Decomposition of Index-Linked Bond Returns. No. 57. By Francis Breedon

WORKING PAPER CENTRAL BANK OF ICELAND. A Variance Decomposition of Index-Linked Bond Returns. No. 57. By Francis Breedon WORKING PAPER CENTRAL BANK OF ICELAND No. 57 A Variance Decomposition of Index-Linked Bond Returns By Francis Breedon January 2012 Central Bank of Iceland Working Papers are published by the Economics

More information

Econometric Modelling for Revenue Projections

Econometric Modelling for Revenue Projections Econometric Modelling for Revenue Projections Annex E 1. An econometric modelling exercise has been undertaken to calibrate the quantitative relationship between the five major items of government revenue

More information

CENTRAL BANK COMMUNICATIONS

CENTRAL BANK COMMUNICATIONS CENTRAL BANK COMMUNICATIONS AND EQUITY ETFS TAO WANG JIAN YANG* JINGTAO WU This article examines effects of monetary policy surprises on returns, volatilities, trading volumes, and bid ask spread of two

More information

BIS Working Papers. No 449 Credit Growth, Monetary Policy, and Economic Activity in a Three-Regime TVAR Model. Monetary and Economic Department

BIS Working Papers. No 449 Credit Growth, Monetary Policy, and Economic Activity in a Three-Regime TVAR Model. Monetary and Economic Department BIS Working Papers No 449 Credit Growth, Monetary Policy, and Economic Activity in a Three-Regime TVAR Model by Stefan Avdjiev and Zheng Zeng Monetary and Economic Department June 24 JEL classification:

More information

12.1 Introduction. 12.2 The MP Curve: Monetary Policy and the Interest Rates 1/24/2013. Monetary Policy and the Phillips Curve

12.1 Introduction. 12.2 The MP Curve: Monetary Policy and the Interest Rates 1/24/2013. Monetary Policy and the Phillips Curve Chapter 12 Monetary Policy and the Phillips Curve By Charles I. Jones Media Slides Created By Dave Brown Penn State University The short-run model summary: Through the MP curve the nominal interest rate

More information

the transmission channels of monetary policy the fragility of the nancial system the existence of nancial cycles

the transmission channels of monetary policy the fragility of the nancial system the existence of nancial cycles 1 The macroeconomic consequences of nancial imperfections the transmission channels of monetary policy the fragility of the nancial system the existence of nancial cycles the real eects of nancial intermediation

More information

DOLLAR DEPRECIATION WILL NOT CONTRIBUTE TO U.S. INFLATION

DOLLAR DEPRECIATION WILL NOT CONTRIBUTE TO U.S. INFLATION DOLLAR DEPRECIATION WILL NOT CONTRIBUTE TO U.S. INFLATION Alan C. Stockman University of Rochester Prepared for the May 2, 2004 Meeting of the Shadow Open Market Committee Over the last 2 years, the dollar

More information

Bond Market Insights October 10, 2014

Bond Market Insights October 10, 2014 Bond Market Insights October 10, 2014 by John Simms, CFA and Jerry Wiesner, CFA General Bond Market Treasury yields rose in September as prices fell. Yields in the belly of the curve (5- to 7-year maturities)

More information

The global financial crisis which began in the

The global financial crisis which began in the What is responsible for the easing of credit standards before the crisis: monetary policy or the savings glut? Adrian Penalver Monetary and Financial Analysis Directorate This letter presents the findings

More information

Discussion of. Public Debt and Changing Inflation Targets. Guido Ascari, University of Pavia

Discussion of. Public Debt and Changing Inflation Targets. Guido Ascari, University of Pavia Discussion of Public Debt and Changing Inflation Targets by M. Krause and S. Moyen Guido Ascari, University of Pavia Bundesbank and Banque de France Conference Fiscal and Monetary Policy Challenges in

More information

YIELD CURVE GENERATION

YIELD CURVE GENERATION 1 YIELD CURVE GENERATION Dr Philip Symes Agenda 2 I. INTRODUCTION II. YIELD CURVES III. TYPES OF YIELD CURVES IV. USES OF YIELD CURVES V. YIELD TO MATURITY VI. BOND PRICING & VALUATION Introduction 3 A

More information

What is the neutral interest rate level? Is it worthwhile searching for it from a market perspective? Bjørn Roger Wilhelmsen

What is the neutral interest rate level? Is it worthwhile searching for it from a market perspective? Bjørn Roger Wilhelmsen What is the neutral interest rate level? Is it worthwhile searching for it from a market perspective? Bjørn Roger Wilhelmsen The neutral rate a crucial concept in monetary theory h A benchmark for monetary

More information

What accounts for the fall in UK ten-year government bond yields?

What accounts for the fall in UK ten-year government bond yields? Research and analysis Accounting for the fall in UK government bond yields What accounts for the fall in UK ten-year government bond yields? By Rodrigo Guimarães of the Bank s Macro Analysis Division.

More information

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES CHAPTER : THE TERM STRUCTURE OF INTEREST RATES CHAPTER : THE TERM STRUCTURE OF INTEREST RATES PROBLEM SETS.. In general, the forward rate can be viewed as the sum of the market s expectation of the future

More information

GOVERNMENT DEBT MANAGEMENT AT THE ZERO LOWER BOUND

GOVERNMENT DEBT MANAGEMENT AT THE ZERO LOWER BOUND GOVERNMENT DEBT MANAGEMENT AT THE ZERO LOWER BOUND ROBIN GREENWOOD SAMUEL G. HANSON JOSHUA S. RUDOLPH LAWRENCE H. SUMMERS OUR PAPER I. Quantify Fed vs. Treasury conflict in QE era II. Fed vs. Treasury

More information

Predicting the US Real GDP Growth Using Yield Spread of Corporate Bonds

Predicting the US Real GDP Growth Using Yield Spread of Corporate Bonds International Department Working Paper Series 00-E-3 Predicting the US Real GDP Growth Using Yield Spread of Corporate Bonds Yoshihito SAITO yoshihito.saitou@boj.or.jp Yoko TAKEDA youko.takeda@boj.or.jp

More information

Topic 5: Stochastic Growth and Real Business Cycles

Topic 5: Stochastic Growth and Real Business Cycles Topic 5: Stochastic Growth and Real Business Cycles Yulei Luo SEF of HKU October 1, 2015 Luo, Y. (SEF of HKU) Macro Theory October 1, 2015 1 / 45 Lag Operators The lag operator (L) is de ned as Similar

More information

Inflation Expectations and the News

Inflation Expectations and the News FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Inflation Expectations and the News Michael D. Bauer Federal Reserve Bank of San Francisco March 2014 Working Paper 2014-09 http://www.frbsf.org/economic-research/publications/working-papers/wp2014-09.pdf

More information

Forecasting the US Dollar / Euro Exchange rate Using ARMA Models

Forecasting the US Dollar / Euro Exchange rate Using ARMA Models Forecasting the US Dollar / Euro Exchange rate Using ARMA Models LIUWEI (9906360) - 1 - ABSTRACT...3 1. INTRODUCTION...4 2. DATA ANALYSIS...5 2.1 Stationary estimation...5 2.2 Dickey-Fuller Test...6 3.

More information

Measuring the Effect of the Zero Lower Bound On Medium- and Longer-Term Interest Rates

Measuring the Effect of the Zero Lower Bound On Medium- and Longer-Term Interest Rates FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Measuring the Effect of the Zero Lower Bound On Medium- and Longer-Term Interest Rates Eric T. Swanson Federal Reserve Bank of San Francisco and

More information

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES

CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES 1. Expectations hypothesis. The yields on long-term bonds are geometric averages of present and expected future short rates. An upward sloping curve is

More information

FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits

FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits Technical Paper Series Congressional Budget Office Washington, DC FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits Albert D. Metz Microeconomic and Financial Studies

More information

Internet Appendix to Stock Market Liquidity and the Business Cycle

Internet Appendix to Stock Market Liquidity and the Business Cycle Internet Appendix to Stock Market Liquidity and the Business Cycle Randi Næs, Johannes A. Skjeltorp and Bernt Arne Ødegaard This Internet appendix contains additional material to the paper Stock Market

More information

UK Stock Returns & the Impact of Domestic Monetary Policy Shocks

UK Stock Returns & the Impact of Domestic Monetary Policy Shocks UK Stock Returns & the Impact of Domestic Monetary Policy Shocks Don Bredin University College Dublin Stuart Hyde University of Manchester Gerard O Reilly Central Bank of Ireland October 21, 2005 Abstract

More information

In ation Expectations Formation in the Presence of Policy Shifts and Structural Breaks in Peru: An Experimental Analysis

In ation Expectations Formation in the Presence of Policy Shifts and Structural Breaks in Peru: An Experimental Analysis (XXIX Meeting of the BCRP) October 2011 1 / 28 In ation Expectations Formation in the Presence of Policy Shifts and Structural Breaks in Peru: An Experimental Analysis Luís Ricardo Maertens Odria (a) Gabriel

More information

Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements

Do Actions Speak Louder than Words? The Response of Asset Prices to Monetary Policy Actions and Statements Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Do Actions Speak Louder than Words? The Response of Asset Prices

More information

MACROECONOMIC IMPLICATIONS OF FINANCIAL FRICTIONS IN THE EURO ZONE: LESSONS FROM CANADA

MACROECONOMIC IMPLICATIONS OF FINANCIAL FRICTIONS IN THE EURO ZONE: LESSONS FROM CANADA MACROECONOMIC IMPLICATIONS OF FINANCIAL FRICTIONS IN THE EURO ZONE: LESSONS FROM CANADA Pierre L. Siklos WLU and Viessmann European Research Centre JUNE 2014 Prepared for the 20 th Dubrovnik Economic Conference,

More information

The Dynamics of UK and US In ation Expectations

The Dynamics of UK and US In ation Expectations The Dynamics of UK and US In ation Expectations Deborah Gefang Department of Economics University of Lancaster email: d.gefang@lancaster.ac.uk Simon M. Potter Gary Koop Department of Economics University

More information

Real Business Cycle Theory. Marco Di Pietro Advanced () Monetary Economics and Policy 1 / 35

Real Business Cycle Theory. Marco Di Pietro Advanced () Monetary Economics and Policy 1 / 35 Real Business Cycle Theory Marco Di Pietro Advanced () Monetary Economics and Policy 1 / 35 Introduction to DSGE models Dynamic Stochastic General Equilibrium (DSGE) models have become the main tool for

More information

Chapter 3: The Multiple Linear Regression Model

Chapter 3: The Multiple Linear Regression Model Chapter 3: The Multiple Linear Regression Model Advanced Econometrics - HEC Lausanne Christophe Hurlin University of Orléans November 23, 2013 Christophe Hurlin (University of Orléans) Advanced Econometrics

More information

Fixed-income Securities Lecture 3: Yield curves. Connecting various yield curves: intuition

Fixed-income Securities Lecture 3: Yield curves. Connecting various yield curves: intuition Philip H. Dybvig Washington University in Saint Louis The term structure of interest rates Fixed-income Securities Lecture 3: Yield curves Relations among yield curves: intuition Conventions and complications

More information

Rate of Return. Reading: Veronesi, Chapter 7. Investment over a Holding Period

Rate of Return. Reading: Veronesi, Chapter 7. Investment over a Holding Period Rate of Return Reading: Veronesi, Chapter 7 Investment over a Holding Period Consider an investment in any asset over a holding period from time 0 to time T. Suppose the amount invested at time 0 is P

More information

Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy

Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy Federal Reserve Bank of Minneapolis Research Department Staff Report 502 August 2014 Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy S.

More information

The Information Content of Surprise Changes in the Fed Funds Futures Rate: Are They Monetary Shocks?

The Information Content of Surprise Changes in the Fed Funds Futures Rate: Are They Monetary Shocks? The Information Content of Surprise Changes in the Fed Funds Futures Rate: Are They Monetary Shocks? Wei Li January 20, 2014 Abstract Surprise changes in the Fed funds futures rate due to policy actions

More information

More on the Changing Imperatives for U.S. Monetary Policy Normalization

More on the Changing Imperatives for U.S. Monetary Policy Normalization More on the Changing Imperatives for U.S. Monetary Policy Normalization James Bullard President and CEO, FRB-St. Louis Money Marketeers of New York University 24 February 2016 New York, N.Y. Any opinions

More information

Discussion of DSGE Modeling of China s Macroeconomy and Housing Cycle

Discussion of DSGE Modeling of China s Macroeconomy and Housing Cycle Discussion of DSGE Modeling of China s Macroeconomy and Housing Cycle Paolo Pesenti, Federal Reserve Bank of New York Hangzhou, March 2016 Disclaimer: The views expressed in this presentation are those

More information

Monetary policy and the Great Inflation of the 70s in France.

Monetary policy and the Great Inflation of the 70s in France. Monetary policy and the Great Inflation of the 70s in France. Some counterfactuals. Eric Monnet Paris School of Economics & EHESS Introduction What are the causes of the Great Inflation? monetary policy

More information

Accounting for a Shift in Term Structure Behavior with No -Arbitrage and Macro -Finance Models

Accounting for a Shift in Term Structure Behavior with No -Arbitrage and Macro -Finance Models Accounting for a Shift in Term Structure Behavior with No -Arbitrage and Macro -Finance Models Glenn D. Rudebusch y Tao Wu z November 2004 Revised November 2005 and July 2005 Abstract This paper examines

More information

International Money and Banking: 12. The Term Structure of Interest Rates

International Money and Banking: 12. The Term Structure of Interest Rates International Money and Banking: 12. The Term Structure of Interest Rates Karl Whelan School of Economics, UCD Spring 2015 Karl Whelan (UCD) Term Structure of Interest Rates Spring 2015 1 / 35 Beyond Interbank

More information

Bank Loan Portfolios and the Canadian Monetary Transmission Mechanism

Bank Loan Portfolios and the Canadian Monetary Transmission Mechanism Bank Loan Portfolios and the Canadian Monetary Transmission Mechanism Wouter J. DEN HAAN, y Steven W. SUMNER, z Guy M. YAMASHIRO x May 29, 2008 Abstract Following a monetary tightening, bank loans to consumers

More information

HARBOUR INVESTMENT COMPASS

HARBOUR INVESTMENT COMPASS HARBOUR INVESTMENT COMPASS FIXED INTEREST MONTHLY COMMENTARY MARCH 2016 FIXED INTEREST OVERVIEW FOR THE MONTH The RBNZ surprised many local economists by cutting the Official Cash Rate (OCR) by 25 basis

More information

Although there have been various episodes of

Although there have been various episodes of Financial Stress, Monetary Policy, and Economic Activity Fuchun Li, Financial Stability Department and Pierre St-Amant, Canadian Economic Analysis The recent global crisis is a prime example of the substantial

More information

Impact of U.S. Quantitative Easing Policy on Chinese Inflation

Impact of U.S. Quantitative Easing Policy on Chinese Inflation Impact of U.S. Quantitative Easing Policy on Chinese Inflation A Vector Autoregression Analysis Based on QE1 and QE2 by Haodong Ruan Supervised by: Dr. Merwan Engineer Dr. Kenneth Stewart Haodong Ruan,

More information

The Impact of Oil Price Shocks on the U.S. Stock Market: A Note on the Roles of U.S. and non-u.s. Oil Production

The Impact of Oil Price Shocks on the U.S. Stock Market: A Note on the Roles of U.S. and non-u.s. Oil Production Crawford School of Public Policy CAMA Centre for Applied Macroeconomic Analysis The Impact of Oil Price Shocks on the U.S. Stock Market: A Note on the Roles of U.S. and non-u.s. Oil Production CAMA Working

More information

Working Paper Series. What drives euro area break-even inflation rates? no 996 / January 2009. by Matteo Ciccarelli and Juan Angel García

Working Paper Series. What drives euro area break-even inflation rates? no 996 / January 2009. by Matteo Ciccarelli and Juan Angel García Working Paper Series no 996 / What drives euro area break-even inflation rates? by Matteo Ciccarelli and Juan Angel García WORKING PAPER SERIES NO 996 / JANUARY 2009 WHAT DRIVES EURO AREA BREAK-EVEN INFLATION

More information

Household debt and consumption in the UK. Evidence from UK microdata. 10 March 2015

Household debt and consumption in the UK. Evidence from UK microdata. 10 March 2015 Household debt and consumption in the UK Evidence from UK microdata 10 March 2015 Disclaimer This presentation does not necessarily represent the views of the Bank of England or members of the Monetary

More information

A Comparison of 2 popular models of monetary policy

A Comparison of 2 popular models of monetary policy A Comparison of 2 popular models of monetary policy Petros Varthalitis Athens University of Economics & Business June 2011 Varthalitis (AUEB) Calvo vs Rotemberg June 2011 1 / 45 Aim of this work Obviously,

More information

The Relation Between Treasury Yields and Corporate Bond Yield Spreads

The Relation Between Treasury Yields and Corporate Bond Yield Spreads THE JOURNAL OF FINANCE VOL. LIII, NO. 6 DECEMBER 1998 The Relation Between Treasury Yields and Corporate Bond Yield Spreads GREGORY R. DUFFEE* ABSTRACT Because the option to call a corporate bond should

More information

Coordinating Policies: The Central Bank and the DMO

Coordinating Policies: The Central Bank and the DMO Coordinating Policies: The Central Bank and the DMO Monetary policy and fiscal operations -Stephen M Vajs Manila, June 2015 Introduction This talk focuses on three aspects of the central bank s role in

More information

Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the U.S., U.K., and Sweden

Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the U.S., U.K., and Sweden FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the U.S., U.K., and Sweden Refet S. Gürkaynak

More information

Forward Contracts and Forward Rates

Forward Contracts and Forward Rates Forward Contracts and Forward Rates Outline and Readings Outline Forward Contracts Forward Prices Forward Rates Information in Forward Rates Reading Veronesi, Chapters 5 and 7 Tuckman, Chapters 2 and 16

More information

Self-fulfilling debt crises: Can monetary policy really help? By P. Bacchetta, E. Van Wincoop and E. Perazzi

Self-fulfilling debt crises: Can monetary policy really help? By P. Bacchetta, E. Van Wincoop and E. Perazzi Self-fulfilling debt crises: Can monetary policy really help? By P. Bacchetta, E. Van Wincoop and E. Perazzi Discussion by Luca Dedola (ECB) Nonlinearities in Macroeconomics and Finance in Light of the

More information

Questioni di Economia e Finanza

Questioni di Economia e Finanza Questioni di Economia e Finanza (Occasional Papers) Inflation surprises and inflation expectations in the euro area by Marcello Miccoli and Stefano Neri March 2015 Number 265 Questioni di Economia e Finanza

More information

MONETARY POLICY, THE MONEY SUPPLY AND INTEREST RATES. A2 Economics

MONETARY POLICY, THE MONEY SUPPLY AND INTEREST RATES. A2 Economics MONETARY POLICY, THE MONEY SUPPLY AND INTEREST RATES A2 Economics The Specification Introductory Research/Reading Task Go To: http://www.bankofengland.co.uk/monetarypolicy/index.htm Create a Fact Sheet

More information

No. 03/11 BATH ECONOMICS RESEARCH PAPERS

No. 03/11 BATH ECONOMICS RESEARCH PAPERS Sovereign Credit Default Swaps and the Macroeconomy Yang Liu and Bruce Morley No. 03/11 BATH ECONOMICS RESEARCH PAPERS Department of Economics 1 Sovereign Credit Default Swaps and the Macroeconomy Yang

More information

Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA

Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA In today s economic environment, much discussion is centered around the impact of rising interest rates on fixed income

More information