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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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    File URL: http://www.nber.org/papers/w11102.pdf
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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 Seok-Kyun Hur. "Money Growth and Interest Rates," in Takatoshi Ito and Andrew K. Rose, editors, "Monetary Policy under Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15" University of Chicago Press (2006)
    Handle: RePEc:nbr:nberwo:11102

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    1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
    2. von Kalckreuth, Ulf & Chirinko, Robert S. & Breitung, Jörg, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Discussion Paper Series 1: Economic Studies 2003,06, Deutsche Bundesbank, Research Centre.
    3. Mark Bils & Peter J. Klenow & Oleksiy Kryvtsov, 2003. "Sticky prices and monetary policy shocks," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-9.
    4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
    5. Tore Ellingsen & Ulf Soderstrom, 2004. "Why are Long Rates Sensitive to Monetary Policy," Working Papers 256, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Fernando Alvarez & Robert E. Lucas, Jr. & Warren E. Weber, 2001. "Interest rates and inflation," Working Papers 609, Federal Reserve Bank of Minneapolis.
    7. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Ben Bernanke & Jean Boivin & Piotr S. Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 387-422, January.
    9. Scott Hendry & Wai-Ming Ho & Kevin Moran, 2003. "Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model," Working Papers 03-38, Bank of Canada.
    10. Michael Bordo & Joseph Haubrich, 2004. "The Yield Curve, Recession and the Credibility of the Monetary Regime: long run evidence 1875-1997," Econometric Society 2004 North American Summer Meetings 165, Econometric Society.
    11. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
    12. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    13. Kiseok Hong, 1999. "Fluctuations In Consumer Durables Expenditure And Fixed Investment of Korea," International Economic Journal, Korean International Economic Association, vol. 13(3), pages 59-65.
    14. Cyril Monnet & Warren E. Weber, 2001. "Money and interest rates," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
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    Cited by:
    1. Sadayuki Ono, 2007. "Term Structure Dynamics in a Monetary Economy with Learning," Discussion Papers 07/29, Department of Economics, University of York.

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