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Monetary Policy And Long-Term Interest Rates

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  • SHU WU

Abstract

"Movements in long-term interest rates Granger-cause movements in the target federal funds rate, but not vice versa, during 1990-2001. This implies that changes in the monetary policy stance, as measured by the target rate, are predicted by the bond market. Moreover, even innovations to the target rate have little effect on long-term interest rates. The policy instrument seems to be responding to information that is already impounded in the bond market. In sharp contrast, during an earlier period, changes in the target federal funds rate are mostly unanticipated by the bond market, and innovations to the policy target have a large and significant effect on long-term interest rate. "("JEL "E52, E43) Copyright (c) 2008 Western Economic Association International.

Suggested Citation

  • Shu Wu, 2008. "Monetary Policy And Long-Term Interest Rates," Contemporary Economic Policy, Western Economic Association International, vol. 26(3), pages 398-408, July.
  • Handle: RePEc:bla:coecpo:v:26:y:2008:i:3:p:398-408
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    Cited by:

    1. Pieter Jansen, 2009. "Did capital market convergence lower the effectiveness of monetary policy?," Applied Financial Economics, Taylor & Francis Journals, vol. 19(12), pages 975-984.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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