Monetary policy and structural changes in the volatility of us interest rates

Resumo

In this paper we analyze whether the dynamic behavior of the volatility of the US term structure of interest rates has changed significantly in the last five and a half decades and try to link those changes to relevant economic events and, more specifically, to changes in monetary policy. A first analysis suggests that volatility behaves in a different manner for short, medium and long interest rates: longterm rates have a higher persistence of volatility but are less sensitive to new information. The results of an endogenous breakpoint detection analysis show that structural breaks in the dynamic behavior of interest rate volatility may be associated with changes in the Fed¿s monetary policy procedures and with changes in inflation behavior, but short and long rates are affected differently. The dynamic properties of interest rate volatility change in these breaks: there is usually a trade-off between volatility persistence and sensitivity to news that can be related to the changes in monetary policy procedures.