Monetary Policy and Long-Term Interest Rates

Publisher Website
Google Scholar
Abstract
The standard view of the transmission mechanism of monetary policy assigns a key role to long-term interest rates. According to this view, a monetary policy tightening pushes up both short and long interest rates, leading to less spending by interest-sensitive sectors of the economy and therefore to lower real growth. Conversely, a monetary easing results in lower interest rates that stimulate real growth. This chapter provides new evidence on the quantitative effect of monetary policy on the long-term interest rate. It presents the methodology that underlies the empirical work and the empirical results. The chapter describes how monetary policy may affect the bond rate in the short run and the long run. It discusses some previous studies that use entirely different methodologies but reach conclusions regarding the short-run impact of policy on long-term rates which are qualitatively similar to those reported here.

This publication has 1 reference indexed in Scilit: