انتقال ساختار شرایط سیاست های پولی

Under bond rate transmission of monetary policy, standard restrictions on policy responses to obtain determinate inflation need not apply. In periods of passive policy, bond rates may exhibit stable responses to inflation if future policy is anticipated to be active, or if time-varying term premiums incorporate inflation-dependent risk pricing. We derive a generalized Taylor Principle that requires a lower bound to the average anticipated path of forward rate responses to inflation. We also present a no-arbitrage term structure model with horizon-dependent policy and time-varying term premiums to explain mechanics and provide empirical results supporting these channels.

“Monetary policy works largely through indirect channels—in particular, by influencing private sector expectations and thus long-term interest rates.” Bernanke (2004) “Financial markets are the channel through which our policy affects the economy, and asset prices contain valuable information about investors’ expectations for the course of policy, economic activity, and inflation, as well as the risks about those expectations.” Kohn (2005) Most studies of monetary policy focus on the policy interest rate, typically a very short-term rate, such as an overnight rate. However, as suggested by the above quotations, longer-term bond rates are essential conduits for the transmission of monetary policy. As bond rates contain bond trader expectations of future policy rates, not recent policy rates, monetary policy effectiveness depends on the policy perceptions of the bond market. The connection of these perceptions to announced or recently observed policy is not fully understood. Thus, for instance, it is not known whether the parameterization of an invariant policy rate reaction function provides sufficient information for evaluating the effectiveness of monetary policy. The importance of this issue is revealed by revisiting the literature investigating the Great Inflation. Clarida, Gali, and Gertler (2000), Lubik and Schorfheide (2004), and Kozicki and Tinsley (2007) provide empirical evidence that in the period before Paul Volcker was appointed Chairman of the Federal Open Market Committee (FOMC) of the Federal Reserve,1 nominal policy rates exhibited a passive, or inelastic, response (i.e., less than one-for-one) with respect to inflation. However, in the broader context of bond rate transmission, it seems important to consider also the responsiveness of bond rates to inflation. To the best of our knowledge, such an analysis has not been done before. This missing feature of the literature implies important shortcomings in some interpretations of the Great Inflation. In particular, if the bond rate is the transmission channel for monetary policy, explanations that focus on the stability of a Taylor rule description of the policy rate or on central bank assumptions regarding natural rates are not sufficient to assess the stability of the economy and the determinacy of inflation. Inflation determinacy imposes conditions on policy reaction functions. However these conditions may change if bond rates have a distinct influence on economic activity beyond the current policy rate and rational expectations of future policy rates based on the current policy reaction function. This paper argues that real-world features give bond rates such a distinct role. Thus, when introduced into structural models, these features will alter well-accepted determinacy conditions on monetary policy. Specifically, in some situations, passive current policy may be consistent with determinate inflation and the Taylor Principle may not be necessary for policy stability. Under bond rate transmission, real-world features that likely play a key role in assessing policy effectiveness include asymmetric information about policy goals, term premium sensitivity to inflation, and the responsiveness of the future path of the policy rate to inflation. 2 Asymmetric information on the part of the private sector and the central bank is critical for understanding the relationship between short- and long-term interest rates—particularly in the 1980s Kozicki and Tinsley, 2001a, Kozicki and Tinsley, 2001b and Dewachter and Lyrio, in press. Moreover, as shown by Kozicki and Tinsley (2005b) in an empirical model of the U.S. economy, asymmetric information about the inflation goal of policy also affects the transmission of monetary policy shocks. The key role of time-varying term premiums for capturing time variation in yields has been emphasized in several studies including Shiller, Campbell, and Schoenholtz (1983), Duffee (2002), and Dai and Singleton (2002) among others. Other research, such as Ang and Piazzesi (2003), and Dewachter, Lyrio, and Maes (2006) relate yields to macro factors. However, in typical DSGE formats, the possibility of a distinct role for bond yields in explaining economic behaviour is generally not admitted. For instance, Rudebusch and Wu (in press), Hördahl, Tristani and Vestin (2006), and Dewachter and Lyrio (2006) use no-arbitrage term structure models and structural macroeconomic models to relate bond yields to macroeconomic variables through policy responses of short-term interest rates, but the focus remains largely one of explaining yield-curve behaviour given macroeconomic data, and explaining macroeconomic behaviour given policy rate responses. In related work, although they comment on the lack of a structural link, Rudebusch, Sack, and Swanson (2007) establish an empirical link between term premiums and economic activity. Explicit links between the future path of policy responsiveness to economic conditions and bond rates is explored in Ang, Dong, and Piazzesi (2005). However, by constraining the parameters of the policy reaction function to be constant in their formulation, the current reaction function provides sufficient information to summarize the responsiveness of the path of policy to future economic conditions. Thus, their specification limits the ability of the bond rate to have distinct effects on economic activity, independent of those implied by an invariant policy response. One contribution of the current paper is that it generalizes the Ang, Dong, and Piazzesi format by introducing horizon-dependent policy perceptions into a no-arbitrage term structure model. In contrast to existing term structure analyses, including contributions noted above, the current study is directed at implications for inflation determinacy when bond rates are the principal transmission channel for monetary policy. The central (and distinct) roles of bond rates and the perceptions of bond traders in the transmission of policy are discussed in remaining sections of the paper. Section 2 investigates the responsiveness of historical bond rates to macro variables, including inflation, since the mid-1960s. Section 3 uses a simple illustrative macroeconomic model to suggest that if the bond rate is the principal transmission channel then, rather than the Taylor Principle, what matters for stabilizing policy is that the average of the bond forward rates displays an elastic response to expected inflation. In addition, shortcomings of DSGE models with symmetric information are discussed. Section 4 sketches a no-arbitrage model of the term structure with term premiums that reflect time-varying compensation for macroeconomic uncertainty and the possibility of horizon-dependent expectations by bond traders. Within this structure, there are two possible explanations for different inflation sensitivities of bond rates compared to policy rates. Both of these features provide for a distinct role for bond rates to influence economic activity. As suggested by the simple macroeconomic model in the prior section, one explanation is that perceived inelastic responses by the policy rate to inflation in the short run may be counterbalanced by elastic responses in the longer run. A second possible explanation is that forward rate term premiums may also be responsive to inflation. If this is the case, term premiums demanded by traders may compensate for modestly unstable short-run policy. Section 5 presents estimated responses of forward rates to forecasts of macro variables, and Section 6 concludes.

This paper re-examines the stability of monetary policy, taking into account the transmission role of bond yields. Some interpretations of the Great Inflation have focused on the stability of a Taylor rule description of the policy rate or on central bank assumptions regarding natural rates. However, these possible shortcomings in policy are not sufficient to assess the stability of the economy if the bond rate is the transmission channel for monetary policy. With bond rate transmission, we show that conditions for determinate inflation require a lower bound on bond rate responses to expected inflation. Consequently, passive current policy may be compensated by bond trader perceptions of aggressive policy later. Such horizon-dependence in policy anticipations may explain elastic nominal bond rate responses to inflation, even in the 1960s and 1970s when other studies have demonstrated that the policy rate did not keep pace with inflation. Another resolution of possible contradictory sensitivities to inflation by policy rates and bond rates is that risk prices in forward rate term premiums may depend on expected inflation and operate as automatic stabilizers, reducing the lower-bound requirement for expected policy rate responses. In investigating historical behaviour of policy rates and bond rates, we also note the importance of allowing for asymmetric information on the part of the central bank and the private sector. Although structural dynamic expenditure equations are often formulated as functions only of the one-period interest rate, the elimination of market bond rate observations substitutes the information set of the modeller for the more relevant information set of bond traders in long-horizon forecasts. To accommodate these possibilities, we present a variant of the essentially-affine model of no-arbitrage bond pricing that allows for horizon-dependent expectations of policy rate responses and incorporates time-varying term premiums. This model provides a framework for interpreting forward rate responses to equilibrium deviations in expected inflation. Forward rate regressions provide empirical support for the conjecture that forward rate responses at more distant horizons display larger long-run responses to equilibrium deviations in expected inflation. The regressions also suggest forward rate term premiums responded positively to perceptions of a time-varying inflation target in the 1980s but not in the 1960s and 1970s. In future work, we look to isolate the separate contributions of time-varying term premiums and horizon-dependent expectations of future policy rates. This will require imposing no-arbitrage cross-equation restrictions on the forward rate regressions. If horizon-dependent perceptions are confirmed, it would be useful to explore possible reasons for horizon dependency in expectations. If long-horizon expectations are merely inertial, that inertia can partially insulate the economy from poor monetary policies, as may have occurred in the 1960s and 1970s, but may also attenuate responses to new monetary policies. Horizon-dependent expectations may also offer a richer framework for interpreting central bank policy communications.