Monetary Policy Shifts and the Term Structure

47 Pages Posted: 17 Mar 2008

See all articles by Jean Boivin

Jean Boivin

Columbia Business School; HEC Montreal; National Bureau of Economic Research (NBER)

Sen Dong

Columbia University - Columbia Business School, Economics

Andrew Ang

BlackRock, Inc

Multiple version iconThere are 2 versions of this paper

Date Written: March, 14 2008

Abstract

We estimate the effect of shifts in monetary policy using the term structure of interest rates. In our no-arbitrage model, the short rate follows a version of the Taylor (1993) rule where the coefficients on inflation and output can vary over time. We find that monetary policy loadings on inflation, but not output, changed substantially over the last 50 years. Agents tend to assign a risk discount to monetary policy shifts and are willing to pay to be exposed to activist monetary policy. Over 1952-2006, if agents had assigned no value to active monetary policy, the slope of the yield curve would have been approximately 50 basis points higher, and up to twice as volatile, than what actually occurred in data.

Keywords: Quadratic term structure model, Monetary policy, Interest rate risk, time-varying parameter model

JEL Classification: C13, C50, E43, E52, G12

Suggested Citation

Boivin, Jean and Boivin, Jean and Dong, Sen and Ang, Andrew, Monetary Policy Shifts and the Term Structure (March, 14 2008). AFA 2009 San Francisco Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1106467 or http://dx.doi.org/10.2139/ssrn.1106467

Jean Boivin

Columbia Business School ( email )

3022 Broadway
Department of Economics and Finance Room 719, Uris Hall
New York, NY 10027
United States
212-854-9091 (Phone)
212-316-9355 (Fax)

HOME PAGE: http://www.columbia.edu/~jb903/

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sen Dong

Columbia University - Columbia Business School, Economics ( email )

420 West 118th Street
New York, NY 10027
United States

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
300
Abstract Views
2,497
Rank
70,111
PlumX Metrics