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A note on the effect of expected changes in monetary policy on long-term interest rates

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Abstract

The ability of monetary policy to affect long-term interest rates is of central importance for economics and finance. Several recent studies have shown that long-term interest rates are virtually unaffected by monetary policy. This paper develops a statistical methodology to identify the expected and unexpected changes in monetary policy as measured by the federal funds rate. The empirical evidence shows that expected changes in the funds rate cause stronger and more significant movements in the long-term rates. Further, ignoring such asymmetry can erroneously generate the insignificant responses of long-term interest rates to the changes in the monetary policy.

Suggested Citation

  • Hany S. Guirguis & Christos I. Giannikos, 2007. "A note on the effect of expected changes in monetary policy on long-term interest rates," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 99-114, May.
    • Handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:99-114
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    File URL: https://ucema.edu.ar/publicaciones/download/volume10/guirguis.pdf
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    Cited by:

    1. Das, Rituparna, 2009. "Indian G-Sec Market: How the Term Structure Reacts to Monetary Policy," MPRA Paper 16436, University Library of Munich, Germany.

    More about this item

    Keywords

    Long-term interest rate; monetary policy; asymmetry;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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