Bond term risk premiums and optimal monetary policy
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| Title | Bond term risk premiums and optimal monetary policy
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| Author | Chen Hufei and Chen Hongfei |
| Organization | Postdoctoral Programmes, Fudan Unviverity and BFRC;School of Economics, Jinan University and GF Securities |
| Email | chengufei@bankcomm.com；chenhongfei2003@126.com |
| Key Words | Bond Term Risk Premiums; Dynamic Discount Factor; A General Monetary Equilibrium Model |
| Abstract | Monetary policy is conducted in an environment of uncertainty. With the rapid developments of the Aggregate Financing to the Real Economy (AFRE), including rapid expansion in bonds and other financing, the central bank may not extract the underlying state perfectly. Firstly the paper presented a general Macro-Finance equilibrium model of monetary policy where the central bank uses information contained in the term structure to estimate the underlying state of the economy more efficiently. Empirical exercise suggests that there is useful information in the term structure that helps the PBoC to identify shocks to economy on a timely basis. We conclude that the information content of the term structure indeed creates a useful link between the bond market and the macro-economy, and timeliness of bond market data allow for quicker responses of monetary policy to disturbances. |
| Serial Number | WP470 |
| Time | 2013-06-26 |
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