How do interest rates react to news? This paper presents a new methodology, based on a simple dynamic term structure model, which provides for an integrated analysis of the effects of monetary policy actions and macroeconomic news on the term structure of interest rates. I find several new...

Previous research has emphasized the portfolio balance effects of Federal Reserve bond purchases, in which a reduced bond supply lowers term premia. In contrast, we find that such purchases have important signaling effects that lower expected future short term interest rates. Our evidence comes...

The zero lower bound on nominal interest rates began to constrain many central banks’ setting of short-term interest rates in late 2008 or early 2009. According to standard macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of...

Estimated monetary policy rules often appear to indicate a sluggish partial adjustment of the policy interest rate by the central bank. In fact, such evidence does not appear to be persuasive, since the illusion of monetary policy inertia may reflect spuriously omitted persistent influences on...

This paper examines the empirical relationship between the movement of the slope factor in term structure of nominal interest rates and exogenous monetary-policy shocks in the U.S. after 1982. Using first a six-variable VAR model and then a GMM estimation model of the "Taylor rule," I estimate...

Numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate. The conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing...

Presentation to the Swiss National Bank Research Conference, Zurich, Switzerland, September 23, 2011