Euler equations and money market interest rates : the role of monetary and risk premium shocks

Johannes Gareis and Eric Mayer

This paper challenges the view that the observed negative correlation between the Federal Funds rate and the interest rate implied by consumption Euler equations is systematically linked to monetary policy. By using a Monte Carlo experiment, we show that stochastic risk premium disturbances have the capability to drive a wedge between the interest rate targeted by the central bank and the implied Euler equation interest rate such that the correlation between actual and implied rates is negative. -- Euler Interest Rate ; Monetary Policy ; Risk Premium Shocks

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Year of publication:	2012
Authors:	Gareis, Johannes ; Mayer, Eric
Publisher:	Würzburg : Univ., Dep. of Economics, Chair VWL 1
Subject:	Zins \| Interest rate \| Variationsrechnung \| Variational method \| Geldmarkt \| Money market \| Geldpolitik \| Monetary policy \| Risikoprämie \| Risk premium \| Schock \| Shock \| Theorie \| Theory \| USA \| United States \| 1972-2002

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Extent:	Online-Ressource (PDF-Datei: 15 S., 192 KB) graph. Darst.
Series:	Würzburg economic papers : WEP. - Würzburg : Julius-Maximilians-Universität Würzburg, Volkswirtschaftliches Institut, ISSN 2941-7651, ZDB-ID 2135304-9. - Vol. 89
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Notes:	Systemvoraussetzungen: Acrobat Reader
Other identifiers:	hdl:10419/65863 [Handle]
Classification:	E10 - General Aggregative Models. General ; E43 - Determination of Interest Rates; Term Structure Interest Rates ; E44 - Financial Markets and the Macroeconomy ; E52 - Monetary Policy (Targets, Instruments, and Effects)
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10009656105