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The Term Structure Of Interest Rates And The Effets Of Macroeconomics Policy

  • TURNOVSKY, S.J.

This paper analyzes the effects of monetary and fiscal policy shocks on the term structure of interest rates. Temporary versus permanent, unanticipated versus anticipated policy disturbances and the responses of long versus short, and real versus nominal rates are contrasted. The main results are summarized in a series of propositions. Among them, the finding that an unanticipated permanent fiscal expansion impacts more on long-term rates may help explain their observed excessive volatility. The effects of structural changes on the relative variances are also discussed, with the effect that operates through the impact on private speculative behavior being emphasized. Copyright 1989 by Ohio State University Press.

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Paper provided by Department of Economics at the University of Washington in its series Discussion Papers in Economics at the University of Washington with number 89-03.

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Length: 20 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:fth:washer:89-03
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  1. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
  2. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October.
  3. McCafferty, Stephen, 1986. "Aggregate Demand and Interest Rates: A Macroeconomic Approach to the Term Structure," Economic Inquiry, Western Economic Association International, vol. 24(4), pages 521-33, October.
  4. Singleton, Kenneth J, 1980. "Expectations Models of the Term Structure and Implied Variance Bounds," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1159-76, December.
  5. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 211-228.
  6. N. Gregory Mankiw, 1986. "The Term Structure of Interest Rates Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 61-110.
  7. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  8. Turnovsky, Stephen J & Miller, Marcus H, 1984. "The Effects of Government Expenditure on the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 16-33, February.
  9. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December.
  10. Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 485-518, November.
  11. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
  12. McCafferty, Stephen & Driskill, Robert, 1980. "Problems of Existence and Uniqueness in Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 48(5), pages 1313-17, July.
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