Cover IMF Working Papers
Equilibrium Yield Curve, the Phillips Curve, and Monetary Policy
Author:
Mitsuru Katagirinull

Search for other papers by Mitsuru Katagiri in
Current site
Google Scholar
PubMedClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 242
Language:
English
Publication Date:
09 Nov 2018
DOI:
https://doi.org/10.5089/9781484382370.001
ISBN:
9781484382370
ISSN:
1018-5941
Pages:
42
Keywords:
WP; nominal interest rate; monetary policy; business cycle; Term premiums; Phillips curve; Low-for-long; inflation gap; trend inflation; term premium; inflation process; equilibrium yield curve; consumption growth; Inflation; Yield curve; Personal income; Long term interest rates; Short term interest rates
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.6 MB) Download Epub
Upward sloping yield curves are hard to reconcile with the positive association between income and inflation (the Phillips curve) in consumption-based asset pricing models. Using US and UK data, this paper shows inflation is negatively correlated with long-run income growth but positively correlated with cyclical income, thus enabling the model to replicate positive and sizable term premiums, along with the Phillips curve over business cycles. Quantitative analyses also emphasize the importance of monetary policy, predicting that a permanently low growth and low inflation environment would precipitate flatter yield curves due to constraints to monetary policy around the zero lower bound.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2018: Issue 242