Stochastic growth and monetary policy: the impacts on the term structure of interest rates

Renato Flôres Junior and Ricardo Brito ()

No 416, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This paper builds a simple, empirically-verifiable rational expectations model for term structure of nominal interest rates analysis. It solves an stochastic growth model with investment costs and sticky inflation, susceptible to the intervention of the monetary authority following a policy rule. The model predicts several patterns of the term structure which are in accordance to observed empirical facts: (i) pro-cyclical pattern of the level of nominal interest rates; (ii) countercyclical pattern of the term spread; (iii) pro-cyclical pattern of the curvature of the yield curve; (iv) lower predictability of the slope of the middle of the term structure; and (v) negative correlation of changes in real rates and expected inflation at short horizons.

Date: 2001-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repositorio.fgv.br/bitstreams/535e767e-d98 ... 3d4302e1824/download (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:416

Access Statistics for this paper

More papers in FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil) Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().