Why are Long Rates Sensitive to Monetary Policy
We use a quantitative model of the U.S. economy to analyze the response of long-term interest rates to monetary policy, and compare the model results with empirical evidence. We ?nd that the strong and time-varying yield curve response to monetary policy innovations found in the data can be explained by the model. A key ingredient in explaining the yield curve response is central bank private information about the state of the economy or about its own target for in?ation.
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