Greenspan’s conundrum and the Fed’s ability to affect long-term yields

Daniel Thornton

No 2012-036, Working Papers from Federal Reserve Bank of St. Louis

Abstract: In February 2005 Federal Reserve Chairman Alan Greenspan noticed that the 10-year Treasury yields failed to increase despite a 150-basis-point increase in the federal funds rate as a ?conundrum.? This paper shows that the connection between the 10-year yield and the federal funds rate was severed in the late 1980s, well in advance of Greenspan?s observation. The paper hypothesize that the change occurred because the Federal Open Market Committee switched from using the federal funds rate as an operating instrument to using it to implement monetary policy and presents evidence from a variety of sources supporting the hypothesis. The analysis has implications for central banks? interest rate policies.

Keywords: Federal funds rate; Greenspan, Alan (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Greenspan's Conundrum and the Fed's Ability to Affect Long‐Term Yields (2018)
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