Monetary Policy, Inflation Persistence and the Term Structure of Interest Rates: Estimates for the United Kingdom, Germany and the United States

Chadha, Jagjit S.; Ganley, Joe

doi:10.1007/978-1-349-26891-7_7

Monetary Policy and Interest Rates 1998

DOI: 10.1007/978-1-349-26891-7_7

|View full text |Cite

Monetary Policy, Inflation Persistence and the Term Structure of Interest Rates: Estimates for the United Kingdom, Germany and the United States

Jagjit S. Chadha¹,

Joe Ganley²

Help me understand this report

Search citation statements

Order By: Relevance

Paper Sections

Select...

Citation Types

Supporting

Mentioning

Contrasting

Year Published

1998

Publication Types

Select...

Book1

Relationship

Self Cite0

Independent1

Authors

Journals

Cited by 1 publication

(1 citation statement)

References 6 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…See the nice demonstration of this point inChadha and Ganley (1995), who show that the correlation between short and long U.K. interest rates in the low-inflation 1870-1914 period is much smaller than in the high-inflation 1970-1995 period.…”

mentioning

confidence: 99%

Using the Term Structure of Interest Rates for Monetary Policy

Goodfriend¹

1998

Monetary Policy and Interest Rates

View full text Add to dashboard Cite

he term structure of interest rates, i.e., the yield curve, has long been of interest to monetary policymakers and their advisers. The transmission of monetary policy is conventionally viewed as running from shortterm interest rates managed by central banks to longer-term rates that influence aggregate demand. A central bank's leverage over longer-term rates comes from the fact that the market determines these as the average expected level of short rates over the relevant horizon (abstracting from a term premium and default risk). Working in the other direction, the long bond rate contains a premium for expected inflation and, thus, serves as an indicator of the credibility of a central bank's commitment to low inflation. 1 Different theoretical perspectives support the two above-mentioned uses of the term structure for monetary policy: John Hicks's (1939) expectations theory of the term structure supports the first, and Irving Fisher's (1896) decomposition of nominal bond rates into expected inflation and an expected real return supports the second. 2 The two views are compatible in principle, although reconciling them creates difficulties of interpretation in practice. For example, does a steepening yield curve indicate a loss of confidence in the central bank's commitment to low inflation, or does it indicate that markets expect tighter The author is Senior Vice President and Director of Research. This article is an edited version of a paper written for the book Money and Interest Rates, I. Angeloni and R. Rovelli, eds., Macmillan 1998, proceedings of a conference sponsored by Banca d'Italia and IGIER, University Bocconi. Macmillan holds the copyright. The comments of Mike Dotsey, Bob Hetzel, Andy Olmem, John Walter, and participants at the Bank of England workshop on "Extracting Information from Financial Markets" are greatly appreciated. The views are the author's and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System. 1 See, for example, Goodfriend (1993), King (1995), and Svensson (1992). 2 The idea that the term structure of interest rates can be explained by investors' expectations about future short-term interest rates dates back at least to Fisher (1896), but the main development of the theory was done by Hicks (1939).

show abstract

mentioning

confidence: 99%

Using the Term Structure of Interest Rates for Monetary Policy

Goodfriend¹

1998

Monetary Policy and Interest Rates

View full text Add to dashboard Cite

show abstract

scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.

Contact Info

hi@scite.ai

10624 S. Eastern Ave., Ste. A-614

Henderson, NV 89052, USA

Blog Terms and Conditions API Terms Privacy Policy Contact Cookie Preferences Do Not Sell or Share My Personal Information

Made with 💙 for researchers

Part of the Research Solutions Family.

Monetary Policy, Inflation Persistence and the Term Structure of Interest Rates: Estimates for the United Kingdom, Germany and the United States

Cited by 1 publication

References 6 publications

Using the Term Structure of Interest Rates for Monetary Policy

Using the Term Structure of Interest Rates for Monetary Policy

Contact Info

Product

Resources

About