scholarly journals The Aggregate Demand Effects of Short- and Long-Term Interest Rates

2012 ◽  
Author(s):  
Michael T. Kiley
Keyword(s):  
Interest Rates ◽  
Aggregate Demand ◽  
Short And Long Term ◽  
Demand Effects

The Link between German Short- and Long-Term Interest Rates. Some Evidence against a Term Structure Oriented Monetary Policy / Der Zusammenhang zwischen kurz- und langfristigen Zinssätzen in Deutschland. Empirische Evidenz gegen eine zinsstrukturorientierte Geldpolitik

1998 ◽  
Vol 217 (2) ◽  
Author(s):  
Uwe Hassler ◽  
Dieter Nautz
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Term Structure ◽  
Monetary Union ◽  
Stable Relationship ◽  
Monetary Targeting ◽  
Main Indicator ◽  
Short And Long Term

SummaryCritics of the Bundesbank's monetary policy recently suggested the abandonment of monetary targeting in favour of the term structure of interest rates as the main indicator of central bank policy. However, a term structure oriented policy requires a reliable link between short- and long-term interest rates. Our analysis clearly suggests that there is no stable relationship between German short- and long-term interest rates, in particular not after the German monetary union. Consequently, the empirical results of this paper indicate that this policy has not much chance of success.

Optimal Term Structure in a Monetary Economy with Incomplete Markets

2017 ◽  
Vol 18 (1) ◽  
Author(s):  
Matthew Hoelle
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Necessary Conditions ◽  
Policy Rules ◽  
Real Effects ◽  
Monetary Economy ◽  
Short And Long Term ◽  
Dynamic Policy ◽  
Recursive Representation

AbstractIn a stochastic economy, the rebalancing of short and long term government debt positions can have real effects when markets are incomplete. This paper analyzes both stationary and dynamic policy rules for the term structure of interest rates. After proving the existence of a recursive representation of equilibrium, necessary conditions for Pareto efficiency are characterized. The necessary conditions are equivalent for both stationary and dynamic policy rules.

Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach

2018 ◽  
Vol 20 (1) ◽  
Author(s):  
John Nana Francois
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Demand Curve ◽  
Feedback Mechanism ◽  
Empirical Literature ◽  
Term Spread ◽  
Short And Long Term ◽  
Stock Effect

Abstract This paper examines the effects of shocks to foreign official holdings of long-term U.S. Treasuries (FOHL) on macroeconomic aggregates using a dynamic general equilibrium model. The model treats short- and long-term bonds as imperfect substitutes through endogenous portfolio adjustment frictions. This provides a channel for changes in relative supply of assests to influence asset prices. Three key findings emerge: (1) positive shocks to FOHL impact the long-term interest rate and the term spread negatively through a stock effect channel – defined as persistent changes in interest rates as a result of movement along the Treasury demand curve. This result is consistent with findings in the empirical literature. (2) Through a feedback mechanism from an endogenous term structure in the model, the decline in the long-term interest rate induces an expansion in economic activity which leads to an increase in consumption, output and inflation. Both the stock effect and the feedback mechanism are generated by the portfolio frictions. (3) Higher degrees of persistence of FOHL shocks or imperfect asset substitution generate a prolonged negative stock effect following shocks to FOHL. This causes a longer delay of the term spread to return to its steady state after it falls; hence, inducing an extended and stronger stimulative feedback effect from the endogenous term structure into the modeled economy.  These findings help explain macroeconomic events such as the so-called ``Greenspan conundrum'' of the mid 2000s.

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