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Monetary Policy and Long-term Interest Rates

  • Shu Wu

    (Department of Economics, The University of Kansas)

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This paper documents some new empirical results about the monetary policy and long-term interest rates in the United States. It shows that changes in the monetary policy stance are more predictable to the bond market in the 1990s than in the 1970s. This shift in the predictability of the monetary policy actions affects the policy¡¯s impact on long-term interest rates as well as the forecasting power of the yield spread for the future changes in short-term interest rates.

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Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200512.

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Length: 19 pages
Date of creation: Apr 2005
Date of revision: Apr 2005
Handle: RePEc:kan:wpaper:200512
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  1. GlennD. Rudebusch & Tao Wu, 2008. "A Macro-Finance Model of the Term Structure, Monetary Policy and the Economy," Economic Journal, Royal Economic Society, vol. 118(530), pages 906-926, 07.
  2. N. Gregory Mankiw & Jeffrey A. Miron, 1985. "The Changing Behavior of the Term Structure of Interest Rates," NBER Working Papers 1669, National Bureau of Economic Research, Inc.
  3. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1997. "A model of target changes and the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 223-249, July.
  4. Charles L. Evans & David A. Marshall, 1997. "Monetary policy and the term structure of nominal interest rates: evidence and theory," Working Paper Series, Macroeconomic Issues WP-97-10, Federal Reserve Bank of Chicago.
  5. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  6. William Poole & Robert H & Rasche & Daniel L. Thornton, 2002. "Market anticipations of monetary policy actions," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 65-94.
  7. Jeff Fuhrer & George Moore, 1993. "Monetary policy and the behavior of long-term real interest rates," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  8. Hördahl, Peter & Tristani, Oreste & Vestin, David, 2004. "A joint econometric model of macroeconomic and term structure dynamics," Working Paper Series 0405, European Central Bank.
  9. William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
  10. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  11. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
  12. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  13. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
  14. Campbell, John Y & Shiller, Robert J, 1991. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 495-514, May.
  15. Bennett T. McCallum, 1994. "Monetary Policy and the Term Structure of Interest Rates," NBER Working Papers 4938, National Bureau of Economic Research, Inc.
  16. Wendy Edelberg & David Marshall, 1996. "Monetary policy shocks and long-term interest rates," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 2-17.
  17. Buraschi, Andrea & Jiltsov, Alexei, 2005. "Inflation risk premia and the expectations hypothesis," Journal of Financial Economics, Elsevier, vol. 75(2), pages 429-490, February.
  18. M. A. Akhtar, 1995. "Monetary Policy And Long-Term Interest Rates: A Survey Of Empirical Literature," Contemporary Economic Policy, Western Economic Association International, vol. 13(3), pages 110-130, 07.
  19. Yash P. Mehra, 1996. "Monetary policy and long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 27-49.
  20. Juha Seppala & Federico Ravenna, 2005. "Monetary Policy and the Term Structure of Interest Rates," 2005 Meeting Papers 804, Society for Economic Dynamics.
  21. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  22. Joe Lange & Brian Sack & William Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series 2001-24, Board of Governors of the Federal Reserve System (U.S.).
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