Long-term interest rates, risk premia and unconventional monetary policy

Callum Jones and Mariano Kulish

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2547-2561

Abstract: We study two kinds of unconventional monetary policies: announcements about the future path of the short-term rate and long-term nominal interest rates as operating instruments of monetary policy. We do so in a model where the risk premium on long-term debt is, in part, endogenously determined. We find that both policies are consistent with unique equilibria, that, at the zero lower bound, announcements about the future path of the short-term rate can lower long-term interest rates through their impact both on expectations and on the risk premium and that long-term interest rate rules perform as well as, and at times better than, conventional Taylor rules. With simulations, we show that long-term interest rate rules generate sensible dynamics both when in operation and when expected to be applied.

Keywords: Unconventional monetary policy; Taylor rule; Risk premia; Term structure (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Working Paper: Long-term Interest Rates, Risk Premia and Unconventional Monetary Policy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2547-2561

DOI: 10.1016/j.jedc.2013.07.004

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