The Term Structure of Interest Rates and its Role in Monetary Policy for the European Central Bank
55 Pages Posted: 11 Jun 2000 Last revised: 3 Jul 2002
Date Written: September 1995
This paper examines the relationship of the term structure of interest rates to monetary policy instruments and to subsequent real activity and inflation in both Europe and the United States. The results show that monetary policy is an important determinant of the term structure spread, but it unlikely to be the only determinant. In addition, there is significant predictive power for both real activity and inflation. The yield curve is thus a simple and accurate measure that should be viewed as one piece of useful information which, along with other information, can be used to help guide European monetary policy.
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