Expectations play key role in policy transmission – BoE paper
Interest rate expectations and term premia are equally important to the transmission of monetary policy to the yield curve, research published by the Bank of England finds.
Iryna Kaminska, Haroon Mumtaz and Roman Sustek note earlier research found only a “miniscule role” for interest rate expectations, with most of the effect occurring through term premia. This is a problem, as expectations typically play a large role in central bank models, the authors note.
In the working paper, they use
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