Monetary policy implications of the dependence of long term interest rates on disagreement about macroeconomic forecasts

Eric Dor ()

No 2012-ECO-13, Working Papers from IESEG School of Management

Abstract: Recent studies show that disagreement regarding the future evolution of activity, inflation, or long and short interest rates, significantly forecasts holding excess returns. These studies include the papers of Buraschi and Whelan (2012), Barillas and Nimark (2012), Xiong and Yan (2010), Wu (2009) Such results challenge the common view that, under the expectations hypothesis of the term structure, the excess holding return should be unpredictable. The new evidence thus means that the risk premium is time-varying, moving as a function of disagreement. It is useful to discuss the potential implications of such theoretical results and empirical evidence on related monetary policy issues.

Pages: 6 pages
Date: 2012-12
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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