Monetary Policy Shocks and Long-Term Interest Rates

摘要: When monetary policymakers act, what happens to bond yields? There are good theoretical reasons why shorter-term yields should be affected by policy. Open market operations of the Federal Reserve System have an immediate effect on federal funds rate, which is interest rate charged for overnight interbank loans. Since short-term borrowing (such as a one-month loan) acts reasonably close substitute borrowing, increase in accompanied other rates. However, it less clear policy significant five-, ten-, and 15-year yields. It seems doubtful that five-year loans substitutes borrowing. Yet, casual observation suggests actions associated with changes long-term Consider debacle 1994. Publications ranging from Barron's Los Angeles Times argue 1994 was worst year since 1920s. In figure 1, we display one-year holding period returns zero-coupon bonds four years, six ten years maturity.(1) (The vertical lines toward right-hand side each panel indicate January 1994.) If exclude volatile 1979-82 (when experimented direct targeting aggregates), cumulative losses late were among postwar period. This collapse prices took its toll well-known investors: Michael Steinhart's hedge fund sustained 30.5 percent 1994, George Soros's fell 4.6 percent, Julian Robertson's 8.7 - all coming off very strong performances 1993. At same time, concerted tightening. After during exceptionally low stable, Market Committee (FOMC) raised rapidly. As shown 2, 18 months mid-1992 through end 1993 characterized near 3 little variability. more closely resembles mid-1960s than 1970s 1980s. From February 1995, FOMC doubled target 6 seven increments. Figure 2 shows this sort tightening hardly unusual (even excluding period, when not instrument). Nonetheless, congruence these two events (the rapid precipitous rise yields) led some assert induced. For example, Wall Street Journal December 13, 1995 graphically describes month "when Fed began raising rates set year's bond-market slaughter." article, will look at relationship between long then apply learn extraordinary To examine how action rate) affects differing maturities, must confront problem causality. suppose find higher Can infer tighter causes Not necessarily. generally believed tends tighten there indicators future inflation. also expectations inflation tend current The positive correlation money could evidence tightens money, or both jointly caused forecasts …