TY  - JOUR
AU  - Ang,Andrew
AU  - Dong,Sen
AU  - Piazzesi,Monika
TI  - No-Arbitrage Taylor Rules
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13448
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13448
L1  - http://www.nber.org/papers/w13448.pdf
N1  - Author contact info:
Andrew Ang
Columbia Business School
3022 Broadway 413 Uris
New York, NY 10027
Tel: 212/854-9154
Fax: 212/662-8474
E-Mail: aa610@columbia.edu

Sen Dong
Ortus Capital Management Ltd
27th Floor, The Center
99 Queen’s Road Central
Hong Kong
E-Mail: sen.dong@ortuscapital.com

Monika Piazzesi
Department of Economics
Stanford University
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 723-9289
E-Mail: piazzesi@stanford.edu
AB  - We estimate Taylor (1993) rules and identify monetary policy shocks using no-arbitrage pricing techniques. Long-term interest rates are risk-adjusted expected values of future short rates and thus provide strong over-identifying restrictions about the policy rule used by the Federal Reserve. The no-arbitrage framework also accommodates backward-looking and forward-looking Taylor rules. We find that inflation and output gap account for over half of the variation of time-varying excess bond returns and most of the movements in the term spread. Taylor rules estimated with no-arbitrage restrictions differ from Taylor rules estimated by OLS, and the resulting monetary policy shocks are somewhat less volatile than their OLS counterparts.
ER  -