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Money Growth and Interest Rates

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  • Seok-Kyun Hur
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    Abstract

    Our paper explores a transmission mechanism of monetary policy through bond market. Based on the assumption of delayed responses of economic agents to monetary shocks, we derive a system of equations relating the term structure of interest rates with the past history of money growth rates and test the equations with the US data. Our results confirm that the higher ordered moments of money growth rate(converted from the past history of money growth rates) influence the yields of bonds with various maturities in different timing as well as in different magnitudes and monetary policy targeting a certain shape of the term structure of interest rates could be implemented with certain time lags due to path-dependency of interest rates.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11102.

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    Date of creation: Feb 2005
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    Publication status: published as Ito, Takatoshi and Andrew K. Rose (eds.) Monetary Policy with Very Low Inflation in the Pacific Rim NBER-East Asia Seminar on Economics, vol. 15. Chicago and London: University of Chicago Press, 2006.
    Handle: RePEc:nbr:nberwo:11102

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    1. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
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    9. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
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    Cited by:
    1. Sadayuki Ono, 2007. "Term Structure Dynamics in a Monetary Economy with Learning," Discussion Papers, Department of Economics, University of York 07/29, Department of Economics, University of York.

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