Monetary policy drivers of bond and equity risks
Revised edition
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Author
Contributions
- Pflueger, Carolin E., author - Contributor
- Viceira, Luis M., author - Contributor
- Harvard Business School - Contributor
Publication
2014 - Harvard Business School, Boston, Massachusetts
Language
English
Word Count
14,750 words, Guess
Page Count
59 pages
Identifiers
- OCLC Control Number878949162
- Open LibraryOL43062496M
Description
The exposure of US Treasury bonds to the stock market has moved considerably over time. While it was slightly positive on average in the period 1960-2011, it was unusually high in the 1980s and negative in the 2000s, a period during which Treasury bonds enabled investors to hedge macroeconomic risks. This paper explores the effects of monetary policy parameters and macroeconomic shocks on nominal bond risks, using a New Keynesian model with habit formation and discrete regime shifts in 1979 and 1997. The increase in bond risks after 1979 is attributed primarily to a shift in monetary policy towards a more anti-inflationary stance, while the more recent decrease in bond risks after 1997 is attributed primarily to a renewed emphasis on output stabilization and an increase in the persistence of monetary policy. Endogenous responses of bond risk premia amplify these effects of monetary policy on bond risks.
Subjects
Series Statement
- Working paper / Harvard Business School -- 14-031
Other Editions
- Monetary policy drivers of bond and equity risks
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