Uncertainty on Monetary Policy and the Expectations Model of the Term Structure of Interest Rates
In this paper we jointly estimate a forward-looking reaction function for the three-month rate alongwith a term structure relationship linking the six-month interest rates to current and expected future three-month rates. In our empirical model the response of the six-month interest rates to current and future three-month interest rates is allowed to depend on uncertainty on monetary policy. The expectations theory cannot be rejected in periods of low uncertainty on monetary policy.
Authors: | Favero, Carlo A. ; Mosca, Federico |
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Institutions: | IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University |
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