Why are Long Rates Sensitive to Monetary Policy?

IGIER Working Paper No. 256

Riksbank Working Paper No. 5

45 Pages Posted: 14 Mar 2004

See all articles by Tore Ellingsen

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Ulf Söderström

Central Bank of Sweden - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 2004

Abstract

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 find 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 inflation.

Keywords: Term structure of interest rates, yield curve, central bank private

JEL Classification: E43, E52

Suggested Citation

Ellingsen, Tore and Söderström, Ulf, Why are Long Rates Sensitive to Monetary Policy? (March 2004). IGIER Working Paper No. 256, Riksbank Working Paper No. 5, Available at SSRN: https://ssrn.com/abstract=516323 or http://dx.doi.org/10.2139/ssrn.516323

Tore Ellingsen

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Ulf Söderström (Contact Author)

Central Bank of Sweden - Research Department ( email )

Stockholm, 103 37
Sweden
+46 8 787 0829 (Phone)
+46 8 21 05 31 (Fax)

HOME PAGE: http://www.riksbank.se/research/soderstrom

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