The Aggregate Demand Effects of Short- and Long-Term Interest Rates
Year: 2012
Type: article
Abstract: I develop empirical models of the U.S. economy that distinguish between the aggregate demand effects of short- and long-term interest rates-one with clear 'microfoundations' and one more loosely motivated. These models are estimated using government and private long-term bond yields. Estimation results suggest short- and long-term interest rates both influence aggregate spending. The results indicate that the short-term interest rate has a larger influence on economic activity, through its impact on the entire term structure, than term and risk premiums (for equal-sized movements in long-term interest rates). Potential policy implications are discussed.
Author: Michael T. Kiley
Institutions: Federal Reserve, Federal Reserve Board of Governors
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W1521719255