New-Keynesian Macroeconomics and the Term Structure
Journal of Money, Credit and Banking, Forthcoming
49 Pages Posted: 7 Jun 2005 Last revised: 28 Jun 2011
Date Written: August 21, 2009
This article complements the structural New-Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro-model with an unobservable time-varying inflation target and the natural rate of output which are filtered from macro and term structure data. We obtain large and significant estimates of the Phillips curve and real interest rate response parameters. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target dominates the variation in the level factor whereas the monetary policy shocks dominate the variation in the slope and curvature factors.
Keywords: Phillips curve, term structure, New-Keynesian model
JEL Classification: E43, E52, C51
Suggested Citation: Suggested Citation