Working Paper

A monetary policy rule based on nominal and inflation-indexed Treasury yields


Abstract: The yields on nominal and inflation-indexed Treasury debt securities can be used to derive a proxy for the inflation expectations of market participants. This paper investigates whether such a measure has provided a useful guide for monetary policy decisions by the Federal Reserve. The results indicate that since 1999, U.S. monetary policy decisions can be effectively characterized by a simple policy rule in which changes in the federal funds rate respond to the forward rate of inflation compensation.

Keywords: Monetary policy; Government securities; Inflation-indexed bonds;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2003

Number: 2003-07