TY  - JOUR
AU  - Smith,Josephine M.
AU  - Taylor,John B.
TI  - The Long and the Short End of the Term Structure of Policy Rules
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13635
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13635
L1  - http://www.nber.org/papers/w13635.pdf
N1  - Author contact info:
Josephine Smith
NYU Stern School of Business
Department of Finance
44 West 4th Street, Suite 9-86
New York, NY 10012
Tel: 212-998-0171
E-Mail: jsmith@stern.nyu.edu

John B. Taylor
Herbert Hoover Memorial Building
Stanford University
Stanford, CA 94305-6010
Tel: 650/723-9677
Fax: 650-723-1687
E-Mail: John.Taylor@stanford.edu
AB  - We first document a large secular shift in the estimated response of the entire term structure of interest rates to inflation and output in the United States.  The shift occurred in the early 1980s. We then derive an equation that links these responses to the coefficients of the central bank's monetary policy rule for the short-term interest rate.  The equation reveals two countervailing forces that help explain and understand the nature of the link and how its sign is determined. Using this equation, we show that a shift in the policy rule in the early 1980s provides an explanation for the observed shift in the term structure.  We also explore a shift in the policy rule in the 2002-2005 period and its possible effect on long-term rates.
ER  -