Working Paper: CEPR ID: DP8560
Authors: Stefan Gerlach; Laura Moretti
Abstract: 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.
Keywords: Long real interest rates; Monetary policy; TIPS
JEL Codes: E42; E53; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in long-term real interest rates (E43) | federal funds rate cuts (E52) |
| TIPS yield (E43) | federal funds rate (E52) |
| federal funds rate cuts (E52) | TIPS yield (E43) |
| monetary policy shocks (E39) | TIPS yield (E43) |
| economic conditions (E66) | federal funds rate (E52) |
| federal funds rate (E52) | TIPS yield (E43) |