Long-term Interest Rates, Risk Premia and Unconventional Monetary Policy

Callum Jones and Mariano Kulish

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: In a model where the risk premium on long-term debt is, in part, endogenously determined, we study two kinds of unconventional monetary policy: long-term nominal interest rates as operating instruments of monetary policy and announcements about the future path of the short-term rate. We find that both policies are consistent with unique equilibria, that long-term interest rate rules can perform better than conventional Taylor rules, and 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 on both expectations and the risk premium. 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: 2011-04
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Citations: View citations in EconPapers (3)

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Journal Article: Long-term interest rates, risk premia and unconventional monetary policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2011-02

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