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Money Growth and Interest Rates

  • Seok-Kyun Hur
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    Our paper explores a transmission mechanism of monetary policy through bond market. Based on the assumption of delayed responses of economic agents to monetary shocks, we derive a system of equations relating the term structure of interest rates with the past history of money growth rates and test the equations with the US data. Our results confirm that the higher ordered moments of money growth rate(converted from the past history of money growth rates) influence the yields of bonds with various maturities in different timing as well as in different magnitudes and monetary policy targeting a certain shape of the term structure of interest rates could be implemented with certain time lags due to path-dependency of interest rates.

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    File URL: http://www.nber.org/papers/w11102.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11102.

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    Date of creation: Feb 2005
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    Publication status: published as Ito, Takatoshi and Andrew K. Rose (eds.) Monetary Policy with Very Low Inflation in the Pacific Rim NBER-East Asia Seminar on Economics, vol. 15. Chicago and London: University of Chicago Press, 2006.
    Handle: RePEc:nbr:nberwo:11102
    Note: IFM
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    Web page: http://www.nber.org
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    1. Ellingsen, Tore & Söderström, Ulf, 2004. "Why Are Long Rates Sensitive to Monetary Policy?," Working Paper Series 160, Sveriges Riksbank (Central Bank of Sweden).
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
    3. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," NBER Working Papers 10220, National Bureau of Economic Research, Inc.
    4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
    5. Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
    6. Fernando Alvarez & Robert E. Lucas & Warren E. Weber, 2001. "Interest Rates and Inflation," American Economic Review, American Economic Association, vol. 91(2), pages 219-225, May.
    7. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
    8. Joerg Breitung & Robert Chirinko & Ulf von Kalckreuth, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Emory Economics 0307, Department of Economics, Emory University (Atlanta).
    9. Kiseok Hong, 1999. "Fluctuations In Consumer Durables Expenditure And Fixed Investment of Korea," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 59-65.
    10. Michael D. Bordo & Joseph G. Haubrich, 2004. "The yield curve, recessions, and the credibility of the monetary regime: long-run evidence, 1875-1997," Working Paper 0402, Federal Reserve Bank of Cleveland.
    11. Scott Hendry & Wai-Ming Ho & Kevin Moran, 2003. "Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model," Working Papers 03-38, Bank of Canada.
    12. 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.
    13. Cyril Monnet & Warren E. Weber, 2001. "Money and interest rates," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
    14. Mark Bils & Peter J. Klenow & Oleksiy Kryvtsov, 2003. "Sticky prices and monetary policy shocks," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-9.
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