Michael Gallmeyer

McIntire School of Commerce
University of Virginia
Rouss & Robertson Halls, East Lawn
P.O. Box 400173
Charlottesville, Va 22904-4173
Tel: 434-243-4043

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NBER Working Papers and Publications

July 2007Arbitrage-Free Bond Pricing with Dynamic Macroeconomic Models
with Burton Hollifield, Francisco Palomino, Stanley E. Zin: w13245
We examine the relationship between monetary-policy-induced changes in short interest rates and yields on long-maturity default-free bonds. The volatility of the long end of the term structure and its relationship with monetary policy are puzzling from the perspective of simple structural macroeconomic models. We explore whether richer models of risk premiums, specifically stochastic volatility models combined with Epstein-Zin recursive utility, can account for such patterns. We study the properties of the yield curve when inflation is an exogenous process and compare this to the yield curve when inflation is endogenous and determined through an interest-rate/Taylor rule. When inflation is exogenous, it is difficult to match the shape of the historical average yield curve. Capturing its up...

Published: Michael F. Gallmeyer & Burton Hollifield & Francisco J. Palomino & Stanley E. Zin, 2007. "Arbitrage-free bond pricing with dynamic macroeconomic models," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 305-326. citation courtesy of

April 2005Taylor Rules, McCallum Rules and the Term Structure of Interest Rates
with Burton Hollifield, Stanley E. Zin: w11276
Recent empirical research shows that a reasonable characterization of federal-funds-rate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates. See, for example, Cochrane and Piazzesi (2002). The result echoes the policy rule used by McCallum (1994) to rationalize the empirical failure of the `expectations hypothesis' applied to the term- structure of interest rates. That is, rather than forward rates acting as unbiased predictors of future short rates, the historical evidence suggests that the correlation between forward rates and future short rates is surprisingly low. McCallum showed that a desire by the monetary authority to adjust short rates in response to exogenous shocks to ...

Published: Gallmeyer, Michael F., Burton Hollifield and Stanley E. Zin. "Taylor Rules, McCallum Rules And The Term Structure Of Interest Rates," Journal of Monetary Economics, 2005, v52(5,Jul), 921-950. citation courtesy of

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