Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10478497 | Journal of Monetary Economics | 2005 | 27 Pages |
Abstract
The expectations hypothesis of the term structure of interest rates describes a conventional view of the transmission mechanism of monetary policy where bond rates reflect current and expected movements in the policy-controlled rate. However, empirical rejections of the expectations hypothesis are commonplace and lead many to question this description of policy transmission. This paper argues that failure to account for imperfect policy credibility may explain empirical rejections. Empirical rejections may occur even when changing anticipations of future short rates are the primary source of variation in bond rates and the standard term structure transmission channel remains valid.
Related Topics
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Authors
Sharon Kozicki, P.A. Tinsley,