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Title: Why are Long Rates Sensitive to Monetary Policy?

Author(s): Tore Ellingsen and Ulf S�derstr�m

Publication Date: April 2004

Keyword(s): central bank private information, excess sensitivity, term structure of interest rates and yield curve

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Ellingsen, T and S�derstr�m, U. 2004. 'Why are Long Rates Sensitive to Monetary Policy?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4360