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Monetary Policy, Bond Risk Premia, and the Economy

Peter N. Ireland

NBER Working Paper No. 21576
Issued in September 2015
NBER Program(s):The Monetary Economics Program

This paper develops an affine model of the term structure of interest rates in which bond yields are driven by observable and unobservable macroeconomic factors. It imposes restrictions to identify the effects of monetary policy and other structural disturbances on output, inflation, and interest rates and to decompose movements in long-term rates into terms attributable to changing expected future short rates versus risk premia. The estimated model highlights a broad range of channels through which monetary policy affects risk premia and the economy, risk premia affect monetary policy and the economy, and the economy affects monetary policy and risk premia.

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Document Object Identifier (DOI): 10.3386/w21576

Published: Ireland, Peter N., 2015. "Monetary policy, bond risk premia, and the economy," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 124-140. citation courtesy of

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