Monetary policy transmits through broad financial conditions--interest rates, asset prices, credit spreads and exchange rates--rather than through the policy rate alone. Yet current frameworks remain anchored around r*, the neutral interest rate. We introduce FCI*, the neutral level of financial...

This paper implements an emerging data-driven method of directed acyclic graphs to study the contemporaneous causal structure among the federal funds rate and U.S. Treasury bond yields of various maturities. Using high frequency daily data from 1994 to 2009, we find that innovations in the...

The paper uses a reduced-form vector autoregressive framework to study the effects of quantitative easing and operation “twist”, as well as a conventional monetary expansion, on corporate bond yields and spreads. We construct rating- and maturity-based weekly bond portfolios using TRACE and...

In this paper we systematically evaluate how central banks respond to deviations from the inflation target. We present a stylized New Keynesian model in which agents' inflation expectations are sensitive to deviations from the inflation target. To (re-) establish credibility, monetary policy...

U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the...

Controlling for structural breaks, this study examines whether the relationship between the interest rate and inflation exhibits common stochastic trends in a sample of Sub-Saharan Africa (SSA) economies. The results indicate that while the Fisher effect does not hold for the entire sample...

This paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance. The topic is important to investors and also to policymakers, who wish to extract macroeconomic expectations...

Empirical evidence on the expectations hypothesis of the term structure is in-conclusive and its validity widely debated. Using a cointegrated VAR model of US treasury yields, this paper extends a common approach to test the theory. If, as we find, spreads between two yields are non-stationary,...

This paper tests the hypothesis of long-run purchasing power parity (PPP) for all Latin American countries. Those countries share characteristics as high inflation, nominal shocks, and trade openness which might have led to quicker adjustment in relative prices and contributed for PPP to hold....

We ask whether cuts of government consumption lower or raise the sovereign default premium. To address this question, we set up a new data set for 38 emerging and advanced economies which contains quarterly time-series observations for sovereign default premia, government consumption, and...