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Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy

Author

Listed:
  • İsmet Göçer

    (Department of Econometrics, Aydın Adnan Menderes University, Turkey)

  • Serdar Ongan

    (Department of Economics, St. Mary's College of Maryland, United States)

Abstract

This study investigates the asymmetric impacts of changes in inflation rates on the US bond rates. This investigation is constructed on the Fisher Equation. To this end, the nonlinear ARDL model is applied. Empirical findings indicate that only the decreases (πt-) in inflation rates affect bond rates. This asymmetric impact therefore shapes the FED’s monetary policy in terms of determining the bond rates at lower cost. When the inflation rate rises, the FED will know (in advance) that they do not need to increase the bond rates. This reminds us the FED’s former pre-emptive strike policy against inflation.

Suggested Citation

  • İsmet Göçer & Serdar Ongan, 2020. "Asymmetric Impacts of Inflation on the US Bond Rates and FED’s Pre-Emptive Policy," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 5(2), pages 143-157, December.
    • Handle: RePEc:sgh:erfinj:v:5:y:2020:i:2:p:143-157
    DOI: 10.2478/erfin-2020-0008
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    References listed on IDEAS

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    More about this item

    Keywords

    Fisher Effect; Nonlinear and Linear ARDL Models; The FED; Preemptive Strike;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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