What Drives the Term Structure in the Euro Area? Evidence from a Model with Feedback

Paolo Zagaglia

No 2009:12, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: I study a general-equilibrium model of the term structure where bond prices are an integral part of the monetary transmission mechanism. The model is estimated on quarterly Euro area data. I show that, besides shocks to the inflation target, also exogenous variations in money demand and bond supply can explain movements in long-term interest rates. I also find that taking into account the impact of bond yields on the macroeconomy generates superior in-sample and out-of-sample forecasts for output, inflation and for bond yields.

Keywords: Monetary policy; yield curve; monetary transmission mechanism (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2009-05-13
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:2009_0012

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