Why are Long Rates Sensitive to Monetary Policy?

35 Pages Posted: 25 May 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: April 2004

Abstract

We use a quantitative model of the US economy to analyse the response of long-term interest rates to monetary policy, and compare the model results with empirical evidence. We find that the model can explain the strong and time-varying yield curve response to monetary policy innovations found in the data. 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 information, excess sensitivity

JEL Classification: E43, E52

Suggested Citation

Ellingsen, Tore and Söderström, Ulf, Why are Long Rates Sensitive to Monetary Policy? (April 2004). Available at SSRN: https://ssrn.com/abstract=548246

Tore Ellingsen (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

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

Norwegian School of Economics (NHH) - Department of Economics

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N-5035 Bergen
Norway

Ulf Söderström

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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