Business, Management and Accounting
4 years ago

Monetary policy shocks drive short-term interest rates, impacting yield curve.

RePEc: Research Papers in Economics
Monetary policy and the term structure of nominal interest rates: evidence and theory
Charles L. Evans, David A. Marshall

Paper Summary

The article explores how changes in monetary policy impact interest rates on bonds. When the policy is tightened, short-term rates go up quickly, while medium and long-term rates are less affected. These changes in rates are mostly due to a temporary increase in liquidity, not expected inflation. A specific economic model can replicate these patterns if some adjustments are made.

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