The Benchmark Yield Curve and Macroeconomics: A Mixed Frequency Monetary DSGE Model
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| Title | The Benchmark Yield Curve and Macroeconomics: A Mixed Frequency Monetary DSGE Model
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| Author | Shang Yuhuang and Zheng Tingguo |
| Organization | Southwestern University of Finance and Economics; Xiamen University |
| Email | syh@swufe.edu.cn；zhengtg@gmail.com |
| Key Words | Benchmark Interest Rate; Term Structure; Mixed Frequency Data; DSGE Model |
| Abstract | In the process of China's interest rates liberalization, how to reveal the interaction mechanism between the benchmark rate of return (interest rate) and macroeconomic is a rigorous challenge for the real financial practices. Based on New Keynesian framework, we propose a mixed frequency monetary DSGE model with high frequency term structure information. Considering the phenomenon of Chinese macroeconomic uncertainty, we further introduce sunspot shock into the model. The results show that the mixed frequency model which includes the yield curve can identify the Chinese macroeconomic uncertainty and significantly improve the timeliness of macroeconomic analysis; Considering the government bond as benchmark interest rate, the yield curve can better reveal the mechanism of monetary policy instability behavior; Furthermore, the results of mixed frequency model are robust for various specification of monetary policy rule, output gap. It also means the government bond as benchmark interest rate help to reveal the behavior of Chinese macroeconomic; Finally, we can also identify the obvious distinctions on monetary policy between China and The US. |
| Serial Number | WP1019 |
| Time | 2016-01-26 |
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