Skip to main content
Article thumbnail
Location of Repository

Term structure transmission of monetary policy

By S. Kozicki and P.A. Tinsley


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

Topics: ems
Publisher: Elsevier
Year: 2008
OAI identifier:

Suggested articles


  1. (2006). A joint econometric model of macroeconomic and term-structure dynamics. doi
  2. (2006). A Joint Model for the Term Structure of Interest Rates and the Macroeconomy. doi
  3. (2003). A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables. doi
  4. (2007). Accounting for a Shift in Term Structure Behavior with No-Arbitrage and Macro-Finance Models. doi
  5. (1996). Dynamic Asset Pricing Theory. doi
  6. (2002). Dynamic Specifications in Optimizing Trend-Deviation Macro Models. doi
  7. (2002). Expectations Puzzles, Time-Varying Risk Premia, and Affine Models of the Term Structure. doi
  8. (1983). Forward rates and future policy: Interpreting the term structure of interest rates. doi
  9. (2007). Generalizing the Taylor Principle. doi
  10. (2005). Inflation Risk Premia and the Expectations Hypothesis. doi
  11. (2003). Interest and Prices. doi
  12. (2006). Learning, macroeconomic dynamics and the term structure: A Bayesian Analysis. Asset Pricing and Monetary Policy, doi
  13. (2006). Macro Factors and the Term Structure of Interest Rates. doi
  14. (2005). Monetary Perspectives on Risk Premiums in Financial Markets. Speech,
  15. (2000). Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory. doi
  16. (1996). Monetary Policy Shifts and Long-Term Interest Rates. doi
  17. (2005). No-Arbitrage Taylor Rules. University of Chicago working paper, doi
  18. (2004). On the Indeterminacy of New-Keynesian Economics. European Central Bank working paper 323,
  19. (2007). Perhaps the FOMC Did What It Said It Did: An Alternative Interpretation of the Great Inflation. Bank of Canada Working Paper doi
  20. (2005). Permanent and Transitory Policy Shocks in an Empirical Model with Asymmetric Information. doi
  21. (1982). Policy Robustness: Specification and Simulation of a Monthly Money Market Model. doi
  22. (2001). Shifting Endpoints in the Term Structure of Interest Rates. doi
  23. (2002). Term Premia and Interest Rate Forecasts in Affine Models. doi
  24. (2005). Term Structure Estimation with Survey Data on Interest Rate Forecasts. Federal Reserve Board FEDS working paper, doi
  25. (2006). Term Structure Estimation Without Using Latent Factors. doi
  26. (2005). Term Structure Transmission of Monetary Policy (Why Bond Traders are Paid More than Central Bankers). Federal Reserve Bank of Kansas City Working Paper RWP doi
  27. (2004). Testing for Indeterminacy: An Application to U.S. Monetary Policy. doi
  28. (2004). The Budget and Economic Outlook: Fiscal Years doi
  29. (1997). The Econometrics of Financial Markets. doi
  30. (2004). The Logic of Monetary Policy. Speech, December 2.
  31. (1990). The Term Structure of Interest Rates. In doi
  32. (2007). Understanding the New Keynesian Model when Monetary Policy Switches Regimes. NBER working paper 12965, doi
  33. (2005). Using a Long-Term Interest Rate as the Monetary Policy Instrument. doi
  34. (2005). What do you expect? Imperfect policy credibility and tests of the expectations hypothesis. doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.