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The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies

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Abstract

The sensitivity of long-term interest rates to short-term interest rates is a central feature of the yield curve. This post, which draws on our Staff Report, shows that long- and short-term rates co-move to a surprising extent at high frequencies (over daily or monthly periods). However, since 2000, they co-move far less at lower frequencies (over six months or a year). We discuss potential explanations for this finding and its implications for the transmission of monetary policy.

Suggested Citation

  • Samuel Hanson & David O. Lucca & Jonathan H. Wright, 2019. "The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies," Liberty Street Economics 20190304, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87317
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    File URL: https://libertystreeteconomics.newyorkfed.org/2019/03/the-sensitivity-of-long-term-interest-rates-a-tale-of-two-frequencies.html
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    More about this item

    Keywords

    conundrum; interest rates; monetary policy transmission;
    All these keywords.

    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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