We empirically analyze the impact of transaction costs on the performance of essentially affine interest rate models. We test the implied Euler restrictions and calculate the specification error bound of Hansen and Jagannathan to measure model misspecification. Using both short-maturity and long-maturity bond return data we find, under the assumption of frictionless markets, strong evidence of ...

We develop a multisector sticky-price DSGE model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages (standard) monetary policy rule contribute slow response In turn, labor market segmentation at the level induces within-sector strategic substitutability in price-setting decisions, which helps fast sector-specific est...

New Neoclassical Synthesis models equate the instrument of monetary policy to the implied CCAPM rate arising from a standard model with power utility. This paper identifies monetary policy shocks using a multi country dataset and examines the movement of money market and implied CCAPM rates. We find that an increase in the nominal interest rate leads to a fall in the implied CCAPM rate. Incorpo...

We examine the forecasting performance of a range of time-series models of the daily US effective federal funds (FF) rate recently proposed in the literature. We find that: (i) most of the models and predictor variables considered produce satisfactory oneday-ahead forecasts of the FF rate; (ii) the best forecasting model is a simple univariate model where the future FF rate is forecast using th...

Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values ...

This paper proposes a measure to assess the monetary policy for a highly inflationary small open economy: Turkey. The empirical evidence suggests that positive innovations in the spread between the Central Bank’s interbank interest rate and the depreciation rate of the local currency mimic the properties of the tight monetary policy. These innovations, when they are positive, decrease income an...

Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values ...

This paper documents some new empirical results about the monetary policy and long-term interest rates in the United States. It shows that changes in the monetary policy stance are more predictable to the bond market in the 1990s than in the 1970s. This shift in the predictability of the monetary policy actions affects the policy’s impact on long-term interest rates as well as the forecasting p...

This paper investigates a general-equilibrium asset pricing model of the term structure of nominal interest rates. In a pure exchange economy with incomplete information, investors are unable to observe the expected growth rates of both exogenous real output and money supply and, therefore, engage in dynamic Bayesian inference. The dependence of term premia on beliefs allows the model to introd...

We examine the effects of unconventional monetary policy surprises on the value of the dollar using high-frequency intraday data and contrast them with the effects of conventional policy tools. Identifying monetary policy surprises from changes in interest rate future prices in narrow windows around policy announcements, we find that monetary policy surprises since the Federal Reserve lowered i...