scholarly journals Term Premium Variability and Monetary Policy

2016 ◽  
Author(s):  
Timothy S. Fuerst ◽  
Ronald Mau
Keyword(s):  
Monetary Policy ◽  
Term Premium

Term Premium Dynamics and the Taylor Rule

2017 ◽  
Vol 07 (04) ◽  
pp. 1750011 ◽  
Author(s):  
Michael Gallmeyer ◽  
Burton Hollifield ◽  
Francisco Palomino ◽  
Stanley Zin
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
Taylor Rule ◽  
Exchange Economy ◽  
Bond Pricing ◽  
Time Varying ◽  
Inflation Dynamics ◽  
Term Premium ◽  
Nominal Term

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.

scholarly journals Monetary Policy Surprises and the Bank Bill Term Premium

2008 ◽  
Vol 33 (2) ◽  
pp. 231-260 ◽  
Author(s):  
Kathleen Walsh ◽  
David Tan
Keyword(s):  
Monetary Policy ◽  
Term Premium ◽  
Bank Bill

Understanding the Impact of Monetary Policy in Korea using a Macro-Finance Term Structure Model with

2014 ◽  
Vol 22 (2) ◽  
pp. 161-192
Author(s):  
Woon Wook Jang ◽  
Jaehoon Hahn
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
Yield Curve ◽  
Call Rate ◽  
Monetary Policy Shocks ◽  
Macroeconomic Factors ◽  
Term Structure Model ◽  
Term Premium ◽  
Policy Shocks ◽  
Macro Finance

This paper examines the interaction between monetary policy and the macroeconomy using a macro-finance term structure model of Joslin, Priebsch, and Singleton (2012), in which macroeconomic risks are not assumed to be spanned by information about the shape of the yield curve. For model estimation, we apply the Kalman filter to a large number of macroeconomic time series data grouped into output, inflation, and market stress categories and extract three common factors. For the factors determining the shape of the yield curve, we use the call rate, the spread between 10-year government bond yield and the call rate, and a combination of the call rate, 2- and 10-year government bond yields as proxies for the level, slope, and curvature factors. We interpret the call rate as a proxy for both the short rate and the instrument of monetary policy. Empirical results show that the macroeconomic factors have a significant impact on the risk premium associated with monetary policy shocks. Furthermore, we find that monetary policy shocks increase the term premium, which in turn affects the factors determining the yield curve, and such effects on the shape of the yield curve feeds back into the macroeconomic factors. Taken together, empirical findings in this paper can be interpreted as evidence supporting the term premium channel (Ferman, 2011) of monetary policy transmission mechanism.

scholarly journals Oil price shock in the US and the euro area – evidence from the shadow rate and the term premium

2021 ◽  
Vol 21 (3) ◽  
pp. 309-346
Author(s):  
Martin Pažický
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Oil Price ◽  
Price Transmission ◽  
Cholesky Factorization ◽  
Transmission Channel ◽  
Term Premium ◽  
The Us ◽  
Oil Price Shock ◽  
Price Shock

Abstract The aim of this article is to investigate the consequences of oil price changes for the economy of the US and the euro area. Oil price transmission channel is assessed using Granger causalities and structural vector autoregressive (VAR) specifications (applying the Cholesky factorization and the restrictions following the method of Blanchard and Quah). The conventional oil price transmission channel is extended by a shadow policy rate and term premium, as the importance of both indicators has been growing rapidly in recent years. The results confirm that the oil price shock is not negligible in the aftermath of the Global Financial Crisis and in the subsequent period of monetary policy normalization. The findings are confirmed by the outcomes of the Bayesian VAR specification with sign restrictions. The consequences of changes in oil prices have significantly grown since the introduction of unconventional monetary instruments. The magnitude of the response of industrial production, price level and shadow interest rate to the oil price shock is strongest in the period corresponding to the unconventional monetary policy. In many cases, however, the reaction is short-lived. The conventional instrument (policy rate) in the euro area has still not been sufficient to stabilize the economy in the recent period of monetary policy normalization in the US.

scholarly journals Monetary Policy and Corporate Bond Returns

2020 ◽  
Vol 10 (3) ◽  
pp. 441-489 ◽  
Author(s):  
Haifeng Guo ◽  
Alexandros Kontonikas ◽  
Paulo Maio
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Corporate Bond ◽  
Term Premium ◽  
Bond Returns ◽  
Policy Shocks ◽  
The Interest Rate ◽  
The Impact

Abstract We investigate the impact of monetary policy shocks on excess corporate bonds returns. We obtain a significant negative response of bond returns to policy shocks, which is especially strong among low-grading bonds. The largest portion of this response is related to higher expected bond returns (risk premium news), while the impact on expectations of future interest rates (interest rate news) plays a secondary role. However, the interest rate channel is dominant among high-grading bonds and Treasury bonds. Looking at the two components of bond premium news, we find that the dominant channel for high-rating (low-rating) bonds is term premium (credit premium) news. (JEL 44, E52, G10, G12) Received: March 25, 2019: Editorial decision: March 27, 2020 by Editor: Hui Chen. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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