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In response to the 2016 referendum on EU Membership and the ensuing uncertainty as to the eventual consequences of Brexit, the Bank of England (BoE) adopted various methods of influencing market rates, including conventional, unconventional monetary policy measures and communications on forward guidance. To investigate the effectiveness of BoE’s communication, we first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used to measure the stance of policy, attitudes to QE and Brexit. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded by lowering Bank rate and expanding QE, and acted to lower the term premium that might otherwise have risen in response to Brexit uncertainty.

Business Fluctuations --- Cycles --- Financial Markets and the Macroeconomy --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- United Kingdom

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Program conditionality and ownership are important considerations in the IMF's current rethinking of program design. This paper contributes to the literature by developing a theory of program conditionality and ownership on the basis of Cumulative Prospect Theory. The policymaker may value a set of programs, each with fewer conditions, more than an extended program with as many conditions. This valuation bias is greater in ambiguity (Knightian uncertainty) than under uncertainty. If greater valuation of a program engenders more explicit and implicit ownership, then programs with fewer conditions may have a better chance of success. Less is more.

Banks and Banking --- Positive Analysis of Policy-Making and Implementation --- Criteria for Decision-Making under Risk and Uncertainty --- Interest Rates: Determination, Term Structure, and Effects --- Finance --- Discount rates --- Financial services --- Discount --- Argentina

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It has recently been suggested that allowing for switches between different inflationary regimes produces a much better fit for the Fisher relationship between interest rates and inflation, at least for U.S. data. The paper assesses the merits of the regime-switching theory as an explanation for the apparent fluctuations in real interest rates in Australia, Canada, Germany, the United Kingdom, and the United States.

Banks and Banking --- Inflation --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Finance --- Macroeconomics --- Real interest rates --- Long term interest rates --- Short term interest rates --- Yield curve --- Financial services --- Prices --- Interest rates --- United States

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This paper provides a monetary model with nominal rigidities that differs from the conventional New Keynesian model with firms setting pricing policies instead of price levels. In response to permanent or highly persistent monetary policy shocks this model generates the empirically observed slow (inertial) and prolonged (persistent) reaction of the inflation rate, and also the recession that typically accompanies moderate disinflations. The reason is that firms respond to such shocks mostly through a change in the long-run or inflation updating component of their pricing policies. With staggered pricing policies there is a time lag before this is reflected in aggregate inflation.

Banks and Banking --- Inflation --- Macroeconomics --- Price Level --- Deflation --- Monetary Policy --- Open Economy Macroeconomics --- Interest Rates: Determination, Term Structure, and Effects --- Finance --- Disinflation --- Real interest rates --- Inflation persistence --- Sticky prices --- Prices --- Interest rates --- United States

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There is strong evidence that interest rates and bond yield movements exhibit both stochastic volatility and unanticipated jumps. The presence of frequent jumps makes it natural to ask whether there is a premium for jump risk embedded in observed bond yields. This paper identifies a class of jump-diffusion models that are successful in approximating the term structure of interest rates of emerging markets. The parameters of the term structure of interest rates are reconciled with the associated bond yields by estimating the volatility and jump risk premia in highly volatile markets. Using the simulated method of moments (SMM), results suggest that all variants of models which do not take into account stochastic volatility and unanticipated jumps cannot generate the non-normalities consistent with the observed interest rates. Jumps occur (8,10) times a year in Argentina and Brazil, respectively. The size and variance of these jumps is also of statistical significance.

Banks and Banking --- Macroeconomics --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Inflation --- Deflation --- Finance --- Yield curve --- Short term interest rates --- Interest rate modelling --- Asset prices --- Market interest rates --- Interest rates --- Prices --- Argentina --- Risk --- Jump processes --- Bonds --- Econometric models.