The Bundesbank's Inflation Policy and Asymmetric Behavior of the German Term Structure
31 Pages Posted: 12 Nov 2002
There are 3 versions of this paper
The Bundesbank's Inflation Policy and Asymmetric Behavior of the German Term Structure
The Bundesbank's Inflation Policy and Asymmetric Behavior of the German Term Structure
Date Written: September 2002
Abstract
In this paper we analyse the influence of the Bundesbank's inflation targeting policy on the behavior of the spread between long-term and short-term German interest rates. The term spread is considered to be a key indicator of future inflation and economic activity. The application of a momentum threshold autoregressive cointegration model enables us to study the adjustment process of the spread toward equilibrium in greater detail than heretofore possible and permits relaxation of the linear and symmetric adjustment assumption underlying conventional cointegration and error correction investigations on the expectations hypothesis. The empirical findings are consistent with the hypothesized asymmetric adjustment behavior of the spread and can be explained by the Bundesbank's inflation targeting policy during the period from 1975 to 1998.
Keywords: Term Structure, Threshold Cointegration, Asymmetric Adjustment, Inflation Targeting Policy of the Bundesbank
JEL Classification: E43, C22, C50
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Specification Analysis of Affine Term Structure Models
By Qiang Dai and Kenneth J. Singleton
-
Specification Analysis of Affine Term Structure Models
By Qiang Dai and Kenneth J. Singleton
-
By Andrew Ang and Monika Piazzesi
-
By Andrew Ang and Monika Piazzesi
-
By John H. Cochrane and Monika Piazzesi
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton
-
Expectation Puzzles, Time-Varying Risk Premia, and Dynamic Models of the Term Structure
By Qiang Dai and Kenneth J. Singleton