Money Growth and Interest Rates

Edited by Seok-Kyun Hur

in Monetary Policy with Very Low Inflation in the Pacific Rim

Published by University of Chicago Press

Published in print October 2006 | ISBN: 9780226378978
Published online February 2013 | e-ISBN: 9780226379012 | DOI:
Money Growth and Interest Rates

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This chapter addresses the instruments and strategies for monetary policy. It concentrates on an uncommon target for the monetary authorities, namely the term structure of interest rates. The zero short-term interest rate does not necessarily mean the advent of the liquidity trap. It is shown theoretically and empirically that the impulse-response functions of the yield rates with respect to money shocks determine the shape of the term-structure of interest rates. Impulse-response functions of various yield rates with respect to monetary shocks as well as to the short-term interest rate reveal that the reactions of the yield rates may vary across the bonds with different maturities in terms of directions as well as in terms of magnitudes. For both the monthly and the quarterly, data sets exhibit that the interest rates of various maturities are significantly affected by M1 growth rate and its higher-order differences up to the third order.

Keywords: monetary policy; interest rates; liquidity trap; money shocks; impulse-response functions; M1 growth rate

Chapter.  13369 words.  Illustrated.

Subjects: Business and Management

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