TY  - JOUR
AU  - McCallum,Bennett T.
TI  - Monetary Policy and the Term Structure of Interest Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4938
PY  - 1994
Y2  - November 1994
UR  - http://www.nber.org/papers/w4938
L1  - http://www.nber.org/papers/w4938.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu
AB  - This paper addresses a prominent empirical failure of the expectations theory of the term structure of interest rates under the assumption of rational expectations.  This failure concerns the magnitude of slope coefficients in regressions of short rate (or long- rate) changes on long-short spreads.  It is shown that the anomalous empirical findings can be rationalized with the expectations theory by recognition of an exogenous random (but possibly autoregressive) term premium plus the assumption that monetary policy involves smoothing of an interest rate instrument -- the short rate -- together with the responses to the prevailing level of the spread.
ER  -