Browsing by Author "Froyen, R."

Now showing 1 - 2 of 2

Open Access
A century and three-quarters of bank rate and long-term interest rates in the United Kingdom
(Wiley-Blackwell Publishing Ltd., 2017) Berument, Hakan; Cabezon, E.; Froyen, R.
Over the years from 1844 to 2013, the United Kingdom had several distinct monetary policy regimes. This paper examines the relationship between the Bank of England policy rate and UK long-term rates in each regime. Our starting point is R. G. Hawtrey's A century of Bank Rate, which focused mainly on the classical Gold Standard. We also examine the Interwar years, post-Second World War years of policy by discretion and the recent regime of inflation targeting. We find that policy regimes that firmly anchor inflationary expectations result in long-run interest rates becoming less responsive to changes in monetary policy rates. This suggests a conflict between a regime that anchors inflationary expectations and one that allows a central bank to have significant effects on long-term rates via a short-term policy rate. © 2017 John Wiley & Sons Ltd
Open Access
Monetary policy and U.S. long-term interest rates: how close are the linkages?
(Elsevier Inc., 2009) Berument, Hakan; Froyen, R.
The effect of monetary policy on long-term interest rates has been a question of interest in recent years. A number of papers, relying on single-equation estimation techniques, have presented evidence that long-term interest rates exhibit sizable and significant responses to unanticipated changes in the Federal Reserve's target federal funds rate. This paper examines these findings in light of conflicting findings from VAR studies, which indicate negligible effects of innovations in the federal funds rate on long-term rates. To address the issue we use a single-equation approach where unanticipated changes in the federal funds rate are measured as residuals from policy reaction functions. We also estimate VAR specifications, which incorporate information about the timing of changes in the Federal Reserve's target federal funds rate. Our single-equation estimates provide evidence of strong responses of long rates to unanticipated changes in the federal funds rate both for the Greenspan period and for a longer period back to the mid-1960s. It seems likely that estimated VARs for the post-1987 years are less successful in isolating monetary policy surprises than was the case for earlier years. © 2007 Elsevier Inc. All rights reserved.