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Keywords:Interest rates 

Journal Article
Monetary policy and the behavior of long-term real interest rates

A time-honored description of the "monetary transmission channel" suggests that the Fed controls the federal funds rate, which affects the rates on longer-term credit market instruments, which affect the expected real (inflation-adjusted) rates on longer-term instruments, which affect real spending on interest-sensitive goods, which affects unemployment and inflation. And yet one key link in the chain, the expected real long-term interest rate, is not observable.> This article explores the link between the behavior of monetary policy and inferences about the behavior of the expected ...
New England Economic Review , Issue Sep , Pages 39-52

Journal Article
A method for evaluating interest rate risk in U.S. commercial banks

Federal Reserve Bulletin , Issue Aug

Journal Article
Actual Federal Reserve policy behavior and interest rate rules

A popular way to approximate Federal Reserve policy is through the use of estimated interest rate equations, or policy "rules." In these rules, the dependent variable is the interest rate that the Federal Reserve is assumed to control and the explanatory variables are those factors assumed to affect Federal Reserve behavior. This article presents estimates of such a rule, using data from 1954:1-1999:3 but omitting the 1979:4-1982:3 period, when monetary targets were emphasized. Although the estimated coefficient on inflation is found to be larger in the post-1982 period, the difference is ...
Economic Policy Review , Issue Mar , Pages 61-72

Journal Article
Index amortizing rate swaps

As short-term interest rates have declined over the past several years, investors have increasingly sought higher yielding investment vehicles. The index amortizing rate (IAR) swap is one of several new instruments that have been developed in response to this investor demand for yield enhancement. This article explains the structure and pricing of IAR swaps, some of the risks associated with the product, and the uses and growth prospects of the market.
Quarterly Review , Volume 18 , Issue Win , Pages 63-70

Working Paper
Does monetary policy keep up with the Joneses? Optimal interest-rate smoothing with consumption externalities

Changes in monetary policy are typically implemented gradually, an empirical observation known as interest-rate smoothing. We propose the explanation that time-non-separable preferences may render interest-rate smoothing optimal. We find that when consumers have "catching-up-with-the-Joneses" preferences, optimal monetary policy reacts gradually to shocks to prevent inefficiently fast adjustments in consumption. We also extend our basic model to investigate the effects of capital formation and nominal rigidities on the dynamics of optimal monetary policy. Optimal policy responses continue ...
International Finance Discussion Papers , Paper 812

Journal Article
Real interest rates

FRBSF Economic Letter

Working Paper
The high-frequency impact of news on long-term yields and forward rates: Is it real?

This paper uses high-frequency intradaily data to estimate the effects of macroeconomic news announcements on yields and forward rates on nominal and index-linked bonds, and on inflation compensation. To our knowledge, it is the first study in the macro announcements literature to use intradaily real yield data, which allow us to parse the effects of news announcements on real rates and inflation compensation far more precisely than we can using daily data. Long-term nominal yields and forward rates are very sensitive to macroeconomic news announcements. We find that inflation compensation is ...
Finance and Economics Discussion Series , Paper 2008-39

Report
Assessing high house prices: bubbles, fundamentals, and misperceptions

We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the price-to-income ratio can be misleading because they fail to account both for the time series pattern of real long-term interest rates and predictable differences in the long-run growth rates of house prices across local markets. These factors are especially important in ...
Staff Reports , Paper 218

Working Paper
A closer look at the sensitivity puzzle: the sensitivity of expected future short rates and term premia to macroeconomic news

Nominal forward rates are sensitive at surprisingly long horizons to macroeconomic news and monetary-policy surprises. This paper takes advantage of affine term-structure modelling to demonstrate that movements in term premia, not expected future short rates, account for most of the reaction of forward rates at long horizons. Specifically, term premia account for about three quarters of the reaction of nominal forward rates 10 to 15 years hence to the surprise component of numerous macroeconomic news announcements. This has strong implications for the interpretation of interest-rate ...
Finance and Economics Discussion Series , Paper 2007-06

Working Paper
Great moderations and U.S. interest rates: unconditional evidence

The Great Moderation refers to the fall in U.S. output growth volatility in the mid-1980s. At the same time, the United States experienced a moderation in inflation and lower average inflation. Using annual data since 1890, we find that an earlier, 1946 moderation in output and consumption growth was comparable to that of 1984. Using quarterly data since 1947, we also isolate the 1969?83 Great Inflation to refine the asset pricing implications of the moderations. Asset pricing theory predicts that moderations?real or nominal?influence interest rates. We examine the quantitative predictions of ...
FRB Atlanta Working Paper , Paper 2008-01

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