Authors: Herrmann, Fabian
Title: Evaluating the interplay of term premia, monetary policy, and the economy in the euro area
Language (ISO): en
Abstract: This paper investigates the interplay of term premia, monetary policy, and the economy in the euro zone. For this purpose I use a no-arbitrage macro-finance model of the term structure of government bond yields as in Ireland (2015), where yields are modeled as linear-affine functions of the state vector. Movements in term premia are captured by an unobservable risk variable. Restric- tions on the dynamic of the state equation are entailed in order to identify the structural model. The model is estimated using Bayesian estimation techniques. The results highlight a rich dynamic between term premia, monetary policy, and the economy. In line with the "practitioners view" I find that an exogenous rise in pre- mia dampens economic activity. Moreover, during the sample period, the ECB lowered the nominal short-term interest rate in response to a rise in term premia.
URI: http://hdl.handle.net/2003/34317
http://dx.doi.org/10.17877/DE290R-16394
Issue Date: 2015
Appears in Collections:Sonderforschungsbereich (SFB) 823

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