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Euler equations and money market interest rates: the role of monetary policy and risk premium shocks. (English) Zbl 1284.91398
Summary: We challenge the view that the negative correlation between the Federal Funds and the Euler equation interest rate is linked to monetary policy. Using Monte Carlo experiments, we show that the negative correlation can be explained by risk premium disturbances.
MSC:
91B64 Macroeconomic theory (monetary models, models of taxation)
91B82 Statistical methods; economic indices and measures
91G70 Statistical methods; risk measures
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