Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81900
Authors: 
Queijo von Heideken, Virginia
Year of Publication: 
2008
Series/Report no.: 
Sveriges Riksbank Working Paper Series 220
Abstract: 
This paper addresses two important questions that have, so far, been studied separately in the literature. First, the paper aims at explaining the high volatility of long-term interest rates observed in the data, which is hard to replicate using standard macro models. Building a small-scale macroeconomic model and estimating it on U.S. and U.K. data, I show that the policy responses of a central bank that is uncertain about the natural rate of unemployment can explain this volatility puzzle. Second, the paper aims at shedding new light on the distinction between rules and discretion in monetary policy. My empirical results show that using yield curve data may facilitate the empirical discrimination between different monetary policy regimes and that U.S. monetary policy is best understood as originating from a discretionary regime since 1960.
Subjects: 
long-term interest rates
optimal monetary policy
discretion
commitment
Bayesian estimation
JEL: 
C11
C13
C15
E32
E42
E43
E47
E50
Document Type: 
Working Paper

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