Discussion Paper

The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies

Abstract: The sensitivity of long-term interest rates to short-term interest rates is a central feature of the yield curve. This post, which draws on our Staff Report, shows that long- and short-term rates co-move to a surprising extent at high frequencies (over daily or monthly periods). However, since 2000, they co-move far less at lower frequencies (over six months or a year). We discuss potential explanations for this finding and its implications for the transmission of monetary policy.

Keywords: conundrum; interest rates; monetary policy transmission;

JEL Classification: E52; E43;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2019-03-04

Number: 20190304