{
  "title": "Changes in the Relationship Between the Long-Term Interest Rate and its Determinants",
  "publication": "IMF Working Papers, October 1, 1994",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/changes-in-the-relationship-between-the-long-term-interest-rate-and-its-determinants-1279",
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  "summary": "This paper assesses the relative importance of alternative explanations for the rise in long-term interest rates in the United States from October 1993 to April 1994. Standard econometric models of the term structure are shown to have a structural break in the early 1980s.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- This paper assesses the relative importance of alternative explanations for the rise in long-term interest rates in the United States from October 1993 to April 1994.\n- Standard econometric models of the term structure are shown to have a structural break in the early 1980s.\n- An important reason for this change in the traditional term structure relationship appears to be an increase in the responsiveness of long-term rates to changes in the stance of monetary policy.\n- Augmented term structure models that explicitly incorporate the role of monetary policy in determining the level of long-term rates are constructed; these models track variations in the long-term rate better than traditional term structure models, but still leave a significant fraction of the recent increase in long-term rates unexplained."
    },
    {
      "heading": "Key findings",
      "content": "- Structural break: Traditional term structure relationships exhibit a structural break in the early 1980s.\n- Monetary policy responsiveness: There is an increased responsiveness of long-term rates to changes in the stance of monetary policy.\n- Model performance:\n  - Augmented term structure models that include monetary policy effects perform better than traditional models in tracking long-term rate variations.\n  - Even with augmentation, a significant fraction of the recent increase in long-term rates (October 1993 to April 1994) remains unexplained."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subject: Financial services; Long term interest rates; Monetary policy; Monetary stance; Monetary tightening; Short term interest rates; Yield curve\n- Keywords: augmented equation; coefficient; equation; federal funds rate; interest rate; Long term interest rates; long-term rate; monetary policy coefficient; monetary policy index; Monetary stance; Monetary tightening; rate; Short term interest rates; short-term rate; term structure equation; WP; Yield curve\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/changes-in-the-relationship-between-the-long-term-interest-rate-and-its-determinants-1279"
    }
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    "Authors: William Lee, Eswar S Prasad",
    "Published: October 1, 1994",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451854657.001",
    "This paper assesses the relative importance of alternative explanations for the rise in long-term interest rates in the United States from October 1993 to April 1994.",
    "Standard econometric models of the term structure are shown to have a structural break in the early 1980s.",
    "An important reason for this change in the traditional term structure relationship appears to be an increase in the responsiveness of long-term rates to changes in the stance of monetary policy.",
    "Augmented term structure models that explicitly incorporate the role of monetary policy in determining the level of long-term rates are constructed; these models track variations in the long-term rate better than traditional term structure models, but still leave a significant fraction of the recent increase in long-term rates unexplained.",
    "Structural break: Traditional term structure relationships exhibit a structural break in the early 1980s.",
    "Monetary policy responsiveness: There is an increased responsiveness of long-term rates to changes in the stance of monetary policy.",
    "Model performance:",
    "Subject: Financial services; Long term interest rates; Monetary policy; Monetary stance; Monetary tightening; Short term interest rates; Yield curve",
    "Keywords: augmented equation; coefficient; equation; federal funds rate; interest rate; Long term interest rates; long-term rate; monetary policy coefficient; monetary policy index; Monetary stance; Monetary tightening; rate; Short term interest rates; short-term rate; term structure equation; WP; Yield curve"
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