Term Structure Transmission of Monetary Policy
نویسنده
چکیده
Under bond-rate transmission of monetary policy, we show a generalized Taylor Principle requires a lower bound to the average anticipated path of policy responses. This result helps explain the puzzling observation that bond rates appear to exhibit stable responses to inflation, even in periods of passive policy. Another possible explanation is time-varying term premia with risk pricing that depends on inflation. We present a no-arbitrage model of the term structure with horizon-dependent policy and time-varying term premia to illustrate the mechanics and provide empirical results that support these transmission channels.
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