The Yield Curve and Macroeconomic Dynamics

By Peter Hördahl, O. Tristani, David Vestin. Social Science Research Network, 2008

146 citations recorded by the source corpus.

We show that microfounded DSGE models with nominal rigidities can be successful in replicating features of bond yield data, including sizeable term premia and volatile long-term yields, which have previously been considered puzzling in general equilibrium frameworks. At the same time, sample moments of consumption growth and inflation can be fit relatively well. The improved model performance does not arise directly from the presence of nominal rigidities. However, this feature introduces (short-run) monetary non-neutrality, so that monetary policy affects consumption dynamics and bond prices. A high degree of 'interest rate smoothing' in the policy rule is essential for our results. Copyright © European Central Bank. Journal compilation © Royal Economic Society 2008.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/eb66d7018e57a659c421ece238751ec6304c9ef9

Citations in the corpus

• Euro Area Inflation Persistence in an Estimated Nonlinear DSGE Model (2008, unknown): “• projection p(xt+1|yot ,θ) = Z p(xt+1|xt,θ)p(xt|yot ,θ)dxt (22)”