Long-run asset-pricing restrictions in a macro term-structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the...

Identification problems arise in New Keynesian and macro-finance models when the Taylor rule includes both responses to observable variables like inflation and output, and a shock unseen by economists. Identification of the rule's parameters requires additional restrictions on this unobserved...