Work

Term Premium Dynamics and the Taylor Rule

Year: 2017

Type: article

Abstract: We explore the bond-pricing implications of an exchange economy where preference shocks result in time-varying term premiums in real yields with a Taylor rule determining inflation dynamics and nominal term premiums. We calibrate the model by matching the term structure of the means and volatilities of nominal yields. Unlike a model with exogenous inflation, a Taylor rule matching empirical properties of inflation leads to nominal term premiums that are volatile at long maturities. Increasing monetary policy aggressiveness decreases the level and volatility of nominal yields.

Source: Quarterly Journal of Finance

DOI: 10.1142/s2010139217500112

Authors: Michael Gallmeyer, Burton Hollifield, Francisco Palomino, Stanley Zin

Institutions: University of Virginia, Carnegie Mellon University, Federal Reserve Board of Governors, National Bureau of Economic Research, New York University

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121631746

FWCI: 5.352

Cites: 39

Cited by: 30

Related to: 10