Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247186 
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 917
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
Monetary policy moves the yield curve. How much is due to expected interest rates vs. term premia? And does it matter for macroeconomic outcomes? Using an affine term structure model, we shed new light on these questions. Estimation is subject to restrictions addressing an estimation bias in expected interest rates obtained by previous studies. Highfrequency yield curve decomposition around FOMC announcements into term premia and expected interest rates then provides instruments for a local projection model. The effects of interest rate expectations and term premia are found equally important for the transmission mechanism and broadly consistent with macroeconomic theory.
Subjects: 
High-frequency data
monetary policy transmission mechanism
restricted affine term structure models
yield curve decomposition
local projection method
Bayesian estimation
JEL: 
E43
E52
E58
G12
C58
Document Type: 
Working Paper

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