Article ID Journal Published Year Pages File Type
958292 Journal of Empirical Finance 2011 18 Pages PDF
Abstract

This paper applies a new identification approach to estimate the contemporaneous relation between the term structure and monetary policy within a VAR framework. To achieve identification, we combine high-frequency Treasury futures and fed funds futures data with the VAR methodology. Results indicate that policy actions have a slope effect in the yield curve. We also find that the Fed responds to Treasury yields and that this response is stronger for the short and intermediate rates and less aggressive for long-yields. All estimated parameters are significant and robust to various model specifications.

► We use a new identification to estimate the relation between the term structure and monetary policy in a structural VAR. ► The methodology combines high-frequency Treasury futures and fed funds futures data with the VAR methodology. ► Results show that policy actions have a "slope" effect in the yield curve. ► The Fed's response to Treasuries is stronger for the short and intermediate rates and less aggressive for long-yields. ► All estimated parameters are significant and robust to various model specifications.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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