Discussion paper

DP4360 Why are Long Rates Sensitive to Monetary Policy?

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.


Ellingsen, T and U Söderström (2004), ‘DP4360 Why are Long Rates Sensitive to Monetary Policy?‘, CEPR Discussion Paper No. 4360. CEPR Press, Paris & London. https://cepr.org/publications/dp4360