Monetary Policy Uncertainty and Market Interest Rates

Ryo Kato and Yoshifumi Hisata
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Ryo Kato: Bank of Japan
Yoshifumi Hisata: Bank of Japan

No 05-E-7, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper examines the relationship between monetary policy uncertainty and the term structure of interest rates. Extending the Ellingsen and Soderstrom (2001) model, we demonstrate that long-term interest rates are positively related to monetary policy uncertainty, with the magnitude increasing with maturity. Further, we present empirical evidence to show that the theoretical prediction is generally consistent with US data.

Keywords: Monetary policy; term structure of interest rates; GARCH (search for similar items in EconPapers)
JEL-codes: E43 E5 (search for similar items in EconPapers)
Date: 2005-06
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:05-e-7

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