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On the Relationship Between Short‐ and Long‐term Interest Rates *
Author(s) -
Kobayashi Teruyoshi
Publication year - 2004
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1367-0271.2004.00138.x
Subject(s) - economics , term (time) , keynesian economics , interest rate , variety (cybernetics) , new keynesian economics , yield curve , monetary economics , monetary policy , macroeconomics , econometrics , physics , mathematics , statistics , quantum mechanics
Abstract This paper addresses issues regarding the relationship between short‐ and long‐term interest rates. In the real world, an expansionary (contractionary) policy is normally followed by a fall (rise) in long‐term rates. However, there exist exceptional cases in which short‐ and long‐term rates move in opposite directions. This paper attempts to provide a formal explanation for such unusual phenomena using a variety of new Keynesian models. It turns out that the simultaneous occurrence of different economic shocks, to which the central bank should react, can explain this behaviour of long rates.