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Title: Uncertainty on Monetary Policy and the Expectational Model of the Term Structure of Interest Rates

Author(s): Carlo A. Favero and Federico Mosca

Publication Date: March 2001

Keyword(s): Expectations Model, Forward-Looking Reaction Functions and Term Structure Of Interest Rates

Programme Area(s): International Macroeconomics

Abstract: In this Paper we estimate jointly a forward-looking reaction function for the three-month rate along with a term structure relationship linking the six-month interest rates to current and expected future three-month rates. In our empirical model the response of the six-month interest rates to current and future three-month interest rates is allowed to depend on uncertainty on monetary policy. The expectation theory cannot be rejected in periods of low uncertainty on monetary policy.

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Bibliographic Reference

Favero, C and Mosca, F. 2001. 'Uncertainty on Monetary Policy and the Expectational Model of the Term Structure of Interest Rates'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2748