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Why are Long Rates Sensitive to Monetary Policy?Tore EllingsenStockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics Ulf SöderströmCentral Bank of Sweden - Research Department March 2004 IGIER Working Paper No. 256 Riksbank Working Paper No. 5 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.
Number of Pages in PDF File: 45 Keywords: Term structure of interest rates, yield curve, central bank private JEL Classification: E43, E52 working papers seriesDate posted: March 14, 2004Suggested CitationContact Information
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