Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy
This paper analyzes the effects of both anticipated and unanticipated monetary and fiscal disturbances, on the dynamic behavior of a monetary model of a small open economy. It focuses on the adjustment of the short-term and long-term interest rates and the divergence of their transitional paths, particularly in anticipation of these disturbances. The analysis demonstrates how anticipation of a future policy change can generate perverse short-run behavior. The essential reason for the divergence between the short and long rates is that the latter is dominated by long-term expectations, while the former is primarily determined by current influences.
|Date of creation:||Oct 1985|
|Date of revision:|
|Publication status:||published as Turnovsky, Stephen J. "Short-Term and Long-Term Interest Rates in a Monetary Model of a Small Open Economy," Journal of International Economics, Vol. 20, No. 3/4. May 1986, pp. 291-311.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Olivier J. Blanchard, 1984.
"Current and Anticipated Deficits, Interest Rates and Economic Activity,"
NBER Working Papers
1265, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J., 1984. "Current and anticipated deficits, interest rates and economic activity," European Economic Review, Elsevier, vol. 25(1), pages 7-27, June.
- Olivier J. Blanchard, 1991. "Current and Anticipated Deficits, Interest Rates and Economic Activity," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 361-390 National Bureau of Economic Research, Inc.
- Jeffrey Sachs & Charles Wyplosz, 1984. "Real Exchange Rate Effects of Fiscal Policy," NBER Working Papers 1255, National Bureau of Economic Research, Inc.
- Gray, Malcolm R & Turnovsky, Stephen J, 1979. "The Stability of Exchange Rate Dynamics under Perfect Myopic Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 643-60, October.
- Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
- 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.
- Dornbusch, Rudiger, 1976. "Exchange rate expectations and monetary policy," Journal of International Economics, Elsevier, vol. 6(3), pages 231-244, August.
- Willem H. Buiter & Marcus Miller, 1983. "Changing the Rules: Economic Consequences of the Thatcher Regime," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 305-380.
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