Monetary policy and the behaviour of interest rates: are long rates excessively volatile?
AbstractThis paper employs data on short and long interest rates for the G-10 countries, Australia, Austria and Spain to assess the expectations hypothesis (EH) of the term structure, using the Campbell-Shiller (1987, 1991) methodology. Although the EH is rejected in several countries, in all countries actual and theoretical long interest rates do move closely over time. This finding suggests that, at least from a monetary policy perspective, it is appropriate to view long interest rates as determined largely by expectations held by financial market participants concerning the future path of short term interest rates.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 34.
Length: 38 pages
Date of creation: Jan 1996
Date of revision:
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