Monetary Policy Risk: Rules versus Discretion

Abstract Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroe...

Full description

Saved in:
Bibliographic Details
Published in:The Review of financial studies 2022-05, Vol.35 (5), p.2308-2344
Main Authors: Backus, David K, Chernov, Mikhail, Zin, Stanley E, Zviadadze, Irina
Format: Article
Language:English
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
cited_by
cites cdi_FETCH-LOGICAL-c312t-65c065d00a05d1b66d57b9e6f395c78ba8ca102926d4365d19bcd852f59b18fd3
container_end_page 2344
container_issue 5
container_start_page 2308
container_title The Review of financial studies
container_volume 35
creator Backus, David K
Chernov, Mikhail
Zin, Stanley E
Zviadadze, Irina
description Abstract Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope.
doi_str_mv 10.1093/rfs/hhab090
format article
fullrecord <record><control><sourceid>oup_cross</sourceid><recordid>TN_cdi_crossref_primary_10_1093_rfs_hhab090</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><oup_id>10.1093/rfs/hhab090</oup_id><sourcerecordid>10.1093/rfs/hhab090</sourcerecordid><originalsourceid>FETCH-LOGICAL-c312t-65c065d00a05d1b66d57b9e6f395c78ba8ca102926d4365d19bcd852f59b18fd3</originalsourceid><addsrcrecordid>eNp9z81Kw0AUhuFBFIzVlTeQlRsZeyaTmcy4k1ptoaIUXYf5pdHYlDmJ0Ls30q5dnc3D4XsJuWZwx0DzaYo43WyMBQ0nJGOlFLTiUp2SDJTmVJeiPCcXiJ8AwHgJGaEv3Tb0Ju3zt65t3D5fN_h1n6-HNmD-ExIOmD826FLom257Sc6iaTFcHe-EfDzN32cLunp9Xs4eVtRxVvRUCgdSeAADwjMrpReV1UFGroWrlDXKGQaFLqQv-QiZts4rUUShLVPR8wm5Pfx1qUNMIda71HyPK2sG9V9pPZbWx9JR3xx0N-z-hb9W7FQy</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype></control><display><type>article</type><title>Monetary Policy Risk: Rules versus Discretion</title><source>EBSCOhost Business Source Ultimate</source><source>EBSCOhost Econlit with Full Text</source><source>Oxford University Press:Jisc Collections:OUP Read and Publish 2024-2025 (2024 collection) (Reading list)</source><creator>Backus, David K ; Chernov, Mikhail ; Zin, Stanley E ; Zviadadze, Irina</creator><contributor>Goldstein, Itay</contributor><creatorcontrib>Backus, David K ; Chernov, Mikhail ; Zin, Stanley E ; Zviadadze, Irina ; Goldstein, Itay</creatorcontrib><description>Abstract Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope.</description><identifier>ISSN: 0893-9454</identifier><identifier>EISSN: 1465-7368</identifier><identifier>DOI: 10.1093/rfs/hhab090</identifier><language>eng</language><publisher>Oxford University Press</publisher><ispartof>The Review of financial studies, 2022-05, Vol.35 (5), p.2308-2344</ispartof><rights>The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com . 2021</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><cites>FETCH-LOGICAL-c312t-65c065d00a05d1b66d57b9e6f395c78ba8ca102926d4365d19bcd852f59b18fd3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>314,776,780,27903,27904</link.rule.ids></links><search><contributor>Goldstein, Itay</contributor><creatorcontrib>Backus, David K</creatorcontrib><creatorcontrib>Chernov, Mikhail</creatorcontrib><creatorcontrib>Zin, Stanley E</creatorcontrib><creatorcontrib>Zviadadze, Irina</creatorcontrib><title>Monetary Policy Risk: Rules versus Discretion</title><title>The Review of financial studies</title><description>Abstract Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope.</description><issn>0893-9454</issn><issn>1465-7368</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2022</creationdate><recordtype>article</recordtype><recordid>eNp9z81Kw0AUhuFBFIzVlTeQlRsZeyaTmcy4k1ptoaIUXYf5pdHYlDmJ0Ls30q5dnc3D4XsJuWZwx0DzaYo43WyMBQ0nJGOlFLTiUp2SDJTmVJeiPCcXiJ8AwHgJGaEv3Tb0Ju3zt65t3D5fN_h1n6-HNmD-ExIOmD826FLom257Sc6iaTFcHe-EfDzN32cLunp9Xs4eVtRxVvRUCgdSeAADwjMrpReV1UFGroWrlDXKGQaFLqQv-QiZts4rUUShLVPR8wm5Pfx1qUNMIda71HyPK2sG9V9pPZbWx9JR3xx0N-z-hb9W7FQy</recordid><startdate>20220501</startdate><enddate>20220501</enddate><creator>Backus, David K</creator><creator>Chernov, Mikhail</creator><creator>Zin, Stanley E</creator><creator>Zviadadze, Irina</creator><general>Oxford University Press</general><scope>AAYXX</scope><scope>CITATION</scope></search><sort><creationdate>20220501</creationdate><title>Monetary Policy Risk: Rules versus Discretion</title><author>Backus, David K ; Chernov, Mikhail ; Zin, Stanley E ; Zviadadze, Irina</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c312t-65c065d00a05d1b66d57b9e6f395c78ba8ca102926d4365d19bcd852f59b18fd3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2022</creationdate><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Backus, David K</creatorcontrib><creatorcontrib>Chernov, Mikhail</creatorcontrib><creatorcontrib>Zin, Stanley E</creatorcontrib><creatorcontrib>Zviadadze, Irina</creatorcontrib><collection>CrossRef</collection><jtitle>The Review of financial studies</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Backus, David K</au><au>Chernov, Mikhail</au><au>Zin, Stanley E</au><au>Zviadadze, Irina</au><au>Goldstein, Itay</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Monetary Policy Risk: Rules versus Discretion</atitle><jtitle>The Review of financial studies</jtitle><date>2022-05-01</date><risdate>2022</risdate><volume>35</volume><issue>5</issue><spage>2308</spage><epage>2344</epage><pages>2308-2344</pages><issn>0893-9454</issn><eissn>1465-7368</eissn><abstract>Abstract Long-run asset pricing restrictions in a macro term structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope.</abstract><pub>Oxford University Press</pub><doi>10.1093/rfs/hhab090</doi><tpages>37</tpages></addata></record>
fulltext fulltext
identifier ISSN: 0893-9454
ispartof The Review of financial studies, 2022-05, Vol.35 (5), p.2308-2344
issn 0893-9454
1465-7368
language eng
recordid cdi_crossref_primary_10_1093_rfs_hhab090
source EBSCOhost Business Source Ultimate; EBSCOhost Econlit with Full Text; Oxford University Press:Jisc Collections:OUP Read and Publish 2024-2025 (2024 collection) (Reading list)
title Monetary Policy Risk: Rules versus Discretion
url http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-26T18%3A14%3A10IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-oup_cross&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Monetary%20Policy%20Risk:%20Rules%20versus%20Discretion&rft.jtitle=The%20Review%20of%20financial%20studies&rft.au=Backus,%20David%20K&rft.date=2022-05-01&rft.volume=35&rft.issue=5&rft.spage=2308&rft.epage=2344&rft.pages=2308-2344&rft.issn=0893-9454&rft.eissn=1465-7368&rft_id=info:doi/10.1093/rfs/hhab090&rft_dat=%3Coup_cross%3E10.1093/rfs/hhab090%3C/oup_cross%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c312t-65c065d00a05d1b66d57b9e6f395c78ba8ca102926d4365d19bcd852f59b18fd3%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_id=info:pmid/&rft_oup_id=10.1093/rfs/hhab090&rfr_iscdi=true