Monetary policy and the behavior of long-term interest rates
Real output is strongly correlated with the short-term nominal rate of interest. However, standard models of aggregate demand suggest that real output should be correlated with an expected long-term real rate of interest. We argue that the observed output-nominal rate correlation is an artifact of monetary policy. The systematic behavior of monetary policy, in combination with sluggish inflation adjustment and a structural IS curve that relates output to the rationally expected long-term real rate of interest, has made the sample path of the long-term real rate look like the short-term nominal rate. Thus the statistical correlation between the nominal rate and output arises in the interaction of monetary policy with the rest of the macroeconomy; it is not a structural relationship that policy is free to exploit.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1993|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 7702, San Francisco, CA 94120-7702|
Phone: (415) 974-2000
Fax: (415) 974-3333
Web page: http://www.frbsf.org/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fedfap:93-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger)
If references are entirely missing, you can add them using this form.