Monetary policy regimes and the volatility of long-term interest rates

Arbeitspapier

This paper addresses two important questions that have, so far, been studied separately in the literature. First, the paper aims at explaining the high volatility of long-term interest rates observed in the data, which is hard to replicate using standard macro models. Building a small-scale macroeconomic model and estimating it on U.S. and U.K. data, I show that the policy responses of a central bank that is uncertain about the natural rate of unemployment can explain this volatility puzzle. Second, the paper aims at shedding new light on the distinction between rules and discretion in monetary policy. My empirical results show that using yield curve data may facilitate the empirical discrimination between different monetary policy regimes and that U.S. monetary policy is best understood as originating from a discretionary regime since 1960.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 220

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Estimation: General ; Statistical Simulation Methods: General ; Business Fluctuations; Cycles ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Interest Rates: Determination, Term Structure, and Effects ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: long-term interest rates ; optimal monetary policy ; discretion ; commitment ; Bayesian estimation ; Zins ; Volatilität ; Geldpolitik ; Regelbindung ; Diskretionäre Politik ; Bayes-Statistik ; Großbritannien ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Queijo von Heideken, Virginia
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/81900
• Last update: 10.03.2025, 11:44 AM CET