The US Term Structure and Central Bank Policy

Enzo Weber and Juergen Wolters

No 436, University of Regensburg Working Papers in Business, Economics and Management Information Systems from University of Regensburg, Department of Economics

Abstract: The expectations hypothesis of the term structure (EHT) implies cointegration between interest rates of different maturities and predicts certain values for adjustment speed. We estimate reduced-form vector error correction models of the US term structure. These are derived from a structural model combining the EHT, autocorrelated risk premia, interest rate smoothing and monetary policy feedback, which is able to capture a wide range of empirical outcomes. We explicitly test the necessary preconditions for the validity of the theoretical model. Premia persistence rises with longer-rate maturity, while the influence of the according spreads in the central bank reaction function diminishes.

Keywords: Expectations Hypothesis; Risk Premium; Policy Reaction Function (search for similar items in EconPapers)
JEL-codes: E43 (search for similar items in EconPapers)
Date: 2009-10-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: The US term structure and central bank policy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bay:rdwiwi:9655

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