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| Title: | | Term structure transmission of monetary policy  |
| Authors: | | Kozicki, Sharon Tinsley, P. A. |
| Issue Date: | | 2007 |
| Series/Report no.: | | Bank of Canada Working Paper 2007,30 |
| Abstract: | | Under bond-rate transmission of monetary policy, the authors show that a generalized Taylor Principle applies, in which the average anticipated path of policy responses to inflation is subject to a lower bound of unity. This result helps explain how bond rates may exhibit stable responses to inflation, even in periods of passive policy. Another possible explanation is time-varying term premiums with risk pricing that depends on inflation. The authors present a no-arbitrage model of the term structure with horizon-dependent policy perceptions and time-varying term premiums to illustrate the mechanics and provide empirical results that support these transmission channels. |
| Subjects: | | Interest rates Transmission of monetary policy |
| JEL: | | E3 E5 N1 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bank of Canada Working Papers
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