On the Information Content of the Yield Curve: Lessons for the Eurosystem?
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On the Information Content of the Yield Curve: Lessons for the Eurosystem?
Berk, Jan Marc | Bergeijk, Peter van
Credit and Capital Markets – Kredit und Kapital, Vol. 34 (2001), Iss. 1 : pp. 28–47
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Jan Marc Berk, Amsterdam
Peter van Bergeijk, Rotterdam
Cited By
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THE APPLICATION OF SOVEREIGN BOND SPREADS: THE CASE OF SELECTED EU COUNTRIES AND THE USA
Hvozdenská, Jana
Acta academica karviniensia, Vol. 15 (2015), Iss. 1 P.59
https://doi.org/10.25142/aak.2015.005 [Citations: 0]
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Abstract
The focus of this paper is on the use of the yield curve in monetary policy making. Theoretical arguments and a multi-country empirical analysis with an explicit focus on the euro area suggest the need for caution in case the Eurosystem uses the yield curve as an information variable for monetary policy, because multiple theoretical explanations exist for an observed movement in the yield curve, suggesting that policy reactions cannot be prescribed unambiguously. In addition, the empirical analysis shows that, in contrast with earlier findings of, for example, Hardouvelis (1994) and Bernard/Gerlach (1996), the information content of the yield curve is fairly limited. For the individual European countries participating in the Eurosystem as well as for the euro area as a whole, the yield spread possesses only very limited information relating to future movements in the inflation rate and output growth, over-and-above the information contained in the history of the latter variables. (JEL E43, E58)