A Note on the Effect of Expected Changes in Monetary Policy on Long-Term Interest Rates

Journal of Applied Economics, Vol. 10, No. 1, pp. 99-114, May 2007

Posted: 7 Jun 2007

See all articles by Christos I. Giannikos

Christos I. Giannikos

CUNY - Baruch College; CUNY - The Graduate Center

Hany Guirguis

Manhattan College

Abstract

The ability of monetary policy to affect long-term interest rates is of central importance for economics and finance. Several recent studies have shown that long-term interest rates are virtually unaffected by monetary policy. This paper develops a statistical methodology to identify the expected and unexpected changes in monetary policy as measured by the federal funds rate. The empirical evidence shows that expected changes in the funds rate cause stronger and more significant movements in the long-term rates. Further, ignoring such asymmetry can erroneously generate the insignificant responses of long-term interest rates to the changes in the monetary policy.

Keywords: long-term interest rate, monetary policy, asymmetry

JEL Classification: E5, C5

Suggested Citation

Giannikos, Christos I. and Guirguis, Hany, A Note on the Effect of Expected Changes in Monetary Policy on Long-Term Interest Rates. Journal of Applied Economics, Vol. 10, No. 1, pp. 99-114, May 2007, Available at SSRN: https://ssrn.com/abstract=991631

Christos I. Giannikos

CUNY - Baruch College ( email )

Dept. of Eco & Fin
Box B10-225
New York, NY New York 10010
United States
646-312-3492 (Phone)
646-312-3451 (Fax)

CUNY - The Graduate Center ( email )

365 Fifth Avenue
New York,, NY 10016
United States

Hany Guirguis (Contact Author)

Manhattan College ( email )

Manhattan College Parkway
Riverdale, NY 10471
United States

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