Monetary Policy Shifts and Long-Term Interest Rates

Jeffrey Fuhrer

The Quarterly Journal of Economics, 1996, vol. 111, issue 4, 1183-1209

Abstract: The Pure Expectations Hypothesis (PEH) serves as the benchmark model for the relationship between yields on bonds of different maturities. When coupled with rational expectations, however, empirical renderings of the model fail miserably. I explore the possibility that failure to account for changes in monetary policy regime explains much of the failure of the PEH. Estimating changing monetary regimes in conjunction with the PEH significantly improves its performance. The predicted spread between the long and short rates is highly correlated with the actual spread. The standard deviation of the theoretical spread is nearly identical to that of the actual spread.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (108)

Downloads: (external link)
http://hdl.handle.net/10.2307/2946712 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:111:y:1996:i:4:p:1183-1209.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().