Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy

Ismet Gocer and Serdar Ongan
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Serdar Ongan: Department of Economics, St. Mary's College of Maryland, United States

Econometric Research in Finance, 2020, vol. 5, issue 2, 143-157

Abstract: This study investigates the asymmetric impacts of changes in inflation rates on the US bond rates. This investigation is constructed on the Fisher Equation. To this end, the nonlinear ARDL model is applied. Empirical findings indicate that only the decreases (πt-) in inflation rates affect bond rates. This asymmetric impact therefore shapes the FED’s monetary policy in terms of determining the bond rates at lower cost. When the inflation rate rises, the FED will know (in advance) that they do not need to increase the bond rates. This reminds us the FED’s former pre-emptive strike policy against inflation.

Keywords: Fisher Effect; Nonlinear and Linear ARDL Models; The FED; Preemptive Strike (search for similar items in EconPapers)
JEL-codes: E40 E43 G12 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:erfinj:v:5:y:2020:i:2:p:143-157

DOI: 10.2478/erfin-2020-0008

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