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Monetary Policy Shifts and the Term Structure


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Jean Boivin


HEC Montreal; Columbia Business School; National Bureau of Economic Research (NBER)

Sen Dong


Columbia Business School - Economics Department

Rudy J. Loo-Kung


Inter-American Development Bank (IADB)

August 2009

NBER Working Paper No. w15270

Abstract:     
We estimate the effect of shifts in monetary policy using the term structure of interest rates. In our no-arbitrage model, the short rate follows a version of the Taylor (1993) rule where the coefficients on the output gap and inflation vary over time. The monetary policy loading on the output gap has averaged around 0.4 and has not changed very much over time. The overall response of the yield curve to output gap components is relatively small. In contrast, the inflation loading has changed substantially over the last 50 years and ranges from close to zero in 2003 to a high of 2.4 in 1983. Long-term bonds are sensitive to inflation policy shifts with increases in inflation loadings leading to higher short rates and widening yield spreads.

Number of Pages in PDF File: 53

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Date posted: August 25, 2009  

Suggested Citation

Ang, Andrew and Boivin, Jean and Dong, Sen and Loo-Kung, Rudy J., Monetary Policy Shifts and the Term Structure (August 2009). NBER Working Paper No. w15270. Available at SSRN: http://ssrn.com/abstract=1459571

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jean Boivin
HEC Montreal ( email )
3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada
Columbia Business School ( email )
3022 Broadway
Department of Economics and Finance Room 719, Uris Hall
New York, NY 10027
United States
212-854-9091 (Phone)
212-316-9355 (Fax)
HOME PAGE: http://www.columbia.edu/~jb903/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Sen Dong
Columbia Business School - Economics Department ( email )
3022 Broadway
New York, NY 10027
United States
Rudy J. Loo-Kung
Inter-American Development Bank (IADB) ( email )
1300 New York Avenue NW
Washington, DC 20577
United States
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