A macro-finance model of the term structure, monetary policy, and the economy

Glenn Rudebusch () and Tao Wu ()

No 2003-17, Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco

Abstract: This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent term structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both forward-looking and backward-looking elements play important roles in macroeconomic dynamics.

Keywords: Monetary policy; Econometric models; Inflation (Finance) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2003
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Related works:
Working Paper: A Macro-Finance Model of the Term Structure, Monetary Policy, and the Economy (2004)
Journal Article: A macro-finance model of the term structure, monetary policy, and the economy (2004)
Journal Article: A Macro-Finance Model of the Term Structure, Monetary Policy and the Economy (2008)
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