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

Michael Kiley

International Journal of Central Banking, 2014, vol. 10, issue 4, 69-104

Abstract: I develop empirical models of the U.S. economy that distinguish between the aggregate demand effects of short- and long-term interest rates—one with clear “microfoundations” and one more loosely motivated. These models are estimated using government and private long-term bond yields. Estimation results suggest that both short- and long-term interest rates influence aggregate spending. The results indicate that the short-term interest rate has a larger influence on economic activity, through its impact on the entire term structure, than term and risk premiums (for equal-sized movements in long-term interest rates). Potential policy implications are discussed.

JEL-codes: E43 E44 E50 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: The aggregate demand effects of short- and long-term interest rates (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2014:q:4:a:3

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