Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 0447: Monetary Policy and Bond Option Pricing in an Analytical RBC Model

Paul Söderlind ()
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Paul Söderlind: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper analyzes how bond option prices are affected by different types of monetary policy. Analytical results from a general equilibrium model with sticky wages show that employment or output targeting typically give lower bond option prices than inflation targeting.

Keywords: inflation targeting; output targeting; interest rates

JEL-codes: E44; E52; G12

12 pages, First version: May 17, 2001. Revised: January 3, 2003. Earlier revisions: August 24, 2001, August 27, 2001, August 24, 2001, March 15, 2002, March 15, 2002, October 11, 2002, October 11, 2002, January 3, 2002.

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