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Term Structure Transmission of Monetary Policy

Sharon Kozicki () and Peter Tinsley

Staff Working Papers from Bank of Canada

Abstract: Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy. Another possible explanation is time-varying term premiums with risk pricing that depends on inflation. The authors present a no-arbitrage model of the term structure with horizon-dependent policy perceptions and time-varying term premiums to illustrate the mechanics and provide empirical results that support these transmission channels.

Keywords: Interest rates; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E5 N1 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Term structure transmission of monetary policy (2008) Downloads
Working Paper: Term structure transmission of monetary policy (2005) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-30

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