DP8560 Monetary Policy and TIPS Yields before the Crisis

Author(s):	Stefan Gerlach, Laura Moretti
Publication Date:	September 2011
Keyword(s):	long real interest rates, monetary policy, TIPS
JEL(s):	E42, E53, E58
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=8560

We make three points. First, the decade before the financial crisis in 2007 was characterized by a collapse in the yield on TIPS. Second, estimated VARs for the federal funds rate and the TIPS yield show that while monetary policy shocks had negligible effects on the TIPS yield, shocks to the latter had one-to-one effects on the federal funds rate. Third, these findings can be rationalized in a New Keynesian model.