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Journal Article
What makes the yield curve move?
Working Paper
Time varying equilibrium real rates and monetary policy analysis
Although it is generally recognized that the equilibrium real interest rate (ERR) varies over time, most recent work on policy analysis has been carried out under the assumption that this rate is constant. We show how this assumption can affect inferences about the conduct of policy in two different areas. First, if the ERR moves in the same direction as the trend growth rate (as is suggested by theory), the probability that an unperceived change in trend growth will lead to a substantial change in inflation is noticeably lower than is suggested by recent analyses (of inflation in the 1970s, ...
Working Paper
The recent shift in term structure behavior from a no-arbitrage macro-finance perspective
This paper examines a recent shift in the dynamics of the term structure and interest rate risk. We first use standard yield-spread regressions to document such a shift in the U.S. in the mid-1980s. Over the pre- and post-shift subsamples, we then estimate dynamic, affine, no-arbitrage models, which exhibit a significant difference in behavior that can be largely attributed to changes over time in the pricing of risk associated with a ?level? factor. Finally, we suggest a link between the shift in term structure behavior and changes in the risk and dynamics of the inflation target as ...
Journal Article
Improving the way we measure consumer prices
Working Paper
Stylized facts on nominal term structure and business cycles: an empirical VAR study
This paper examines the importance of various macroeconomic shocks in explaining the movement of the term structure of nominal bond yields in the post-war U.S., as well as the channels through which such macro shocks influence the yield curve, using a structural Vector Autoregressive (VAR) model. The results show that the monetary-policy and the aggregate-supply shocks are important determinants of the nominal term structure. Moreover, the monetary-policy innovations have a large but transitory effect on the nominal bond yields, primarily by changing the slope of the yield curve, and the ...
Conference Paper
A macro-finance model of the term structure, monetary policy, and the economy
This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent term structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both ...
Working Paper
Measuring oil-price shocks using market-based information
We develop two measures of exogenous oil-price shocks for the period 1984 to 2006 based on market commentaries on daily oil-price fluctuations. Our measures are based on exogenous events that trigger substantial fluctuations in spot oil prices and are constructed to be free of endogenous and anticipatory movements. We find that the dynamic responses of output and prices implied by these measures are "well behaved." We also find that the response of output is larger than the one implied by a conventional measure of oil-price shocks proposed in the literature.
Journal Article
Two measures of employment: how different are they?
Since the end of the 2001 recession, the U.S. economy has performed pretty well in terms of output growth, averaging about 3-1/4 percent a year. But how well has the economy performed in terms of creating jobs? To answer that question, most analysts look at two independent monthly estimates of employment published by the Bureau of Labor Statistics (BLS). And the problem is that each sends a different signal about recent labor market conditions. The so-called payroll survey has been reporting a substantial loss in employment and a slow recovery of labor market conditions, while the so-called ...
Journal Article
Interest rates and monetary policy: conference summary
This Economic Letter summarizes the papers presented at a conference on "Interest Rates and Monetary Policy" held at the Federal Reserve Bank of San Francisco on March 19 and 20, 2004, under the joint sponsorship of the Federal Reserve Bank of San Francisco and the Stanford Institute for Economic Policy Research. The papers are listed at the end and are available at http://www.frbsf.org/economics/conferences/0403/index.html
Journal Article
Globalization’s effect on interest rates and the yield curve
Globalization?s impact on the relationship between short- and long-term interest rates poses potentially formidable challenges for central banks around the world. It underscores the importance of formulating monetary policy in a credible, consistent and forward-looking way and better communicating it to the public. Adopting these virtues will help anchor long-run inflationary expectations and decrease associated risk premiums. It will also help the public better understand central banks? behavior and decrease the perceived uncertainty of future monetary policy. Globalization may also call for ...