Interest Rate Uncertainty and Economic Fluctuations
نویسندگان
چکیده
Uncertainty associated with the monetary policy transmission mechanism is a key driving force of business cycles. To investigate this link, we propose a new term structure model that allows the volatility of the yield curve to interact with macroeconomic indicators. The data favors a model with two volatility factors that capture shortterm and long-term interest rate uncertainty. Increases in either of them lead higher unemployment rates, but they interact with inflation in opposite directions.
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