Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53785
Authors: 
Kozicki, Sharon
Tinsley, P. A.
Year of Publication: 
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
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