|Title||Monetary policy and the term structure of interest rates|
There are two separate literatures studying the bidirectional relationship between monetary policy and the term structure of interest rates: the New Keynesian Monetary models and the Affine Term Structure models. This study presents four essays that analyze the interaction between the yield curve and the monetary policy utilizing and marrying both frameworks. Chapter 2 utilizes an affine term structure model in order to answer a simple but challenging question: can real time macroeconomic and policy information tell us anything about the yield curve movements? The main finding is that indeed macroeconomic data releases and policy announcements explain persistent jumps in the euro area yield curve. Chapter 3 develops an affine term structure model that the ECBs policy rate is modeled as a jump diffusion with a predetermined timing of the jumps that coincide with the actual Governing Council meeting days. The message reflected in the results is that the policy rate is indeed an important driving factor of the term structure of the yield curve, while the information contained in the yield curve vastly improves the accuracy of the estimated policy rule. Chapter 4 presents a novel extension of the New Keynesian Monetary model that the central bank intervenes at regular points in time. Moreover, it presents an estimation technique which utilizes an information structure with more than one frequency. The empirical results suggest that the presence of the non-intervention subperiods force the central bank to over-respond to inflationï¼› the lack of information on output during subperiods leads to lower estimates for the policy rules response to output which indicates that the CB gives less weight to the unobservable information. Chapters 5 main contribution is that it extends the periodic New Keynesian model introduced in Chapter 4 in order to account for the information-rich environment delivered by the yield curve and focuses on identifying the effects that the term structure of interest rates and the seasonal central bank intervention have on the NK model. The empirical results indicate the term structure information identifies a more conservative policy rule in terms of inflation responses, and more aggressive, in terms of output responses.
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