Risk and Policy Shocks on the US Term Structure

19 Pages Posted: 4 Jan 2013

See all articles by Enzo Weber

Enzo Weber

University of Regensburg; Government of the Federal Republic of Germany - Institute for Employment Research (IAB); Osteuropa-Institut (OEI)

Jürgen Wolters

Free University of Berlin (FUB)

Date Written: February 2013

Abstract

We document two stylized facts of US short‐term and long‐term interest rate data seemingly incompatible with the expectations hypothesis: low contemporaneous cross‐correlation and relatively slow adjustment to long‐run relationships. We explain these features in a small structural model with three types of randomness: While a persistent monetary policy shock implies immediate identical reactions through the term structure, both a transitory policy shock and an autocorrelated risk premium allow for sustained deviations. Indeed, we find important impacts and persistence of risk premia and considerable contribution of transitory policy shocks to short rates. Results of standard expectations hypothesis tests can be rationalized.

Suggested Citation

Weber, Enzo and Wolters, Jürgen, Risk and Policy Shocks on the US Term Structure (February 2013). Scottish Journal of Political Economy, Vol. 60, Issue 1, pp. 101-119, 2013, Available at SSRN: https://ssrn.com/abstract=2196322 or http://dx.doi.org/10.1111/sjpe.12004

Enzo Weber (Contact Author)

University of Regensburg ( email )

93040 Regensburg
D-93040 Regensburg, 93053
Germany

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Osteuropa-Institut (OEI) ( email )

Landshuter Str. 4
Regensburg, 93047
Germany

Jürgen Wolters

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
D-10785 Berlin, Berlin 14195
Germany
+49-30-838-2014 (Phone)
+49-30-838-4142 (Fax)

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