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Edward N Gamber and Julie K Smith
''Monetary policy and the yield curve''
( 2020, Vol. 40 No.1 )
The Federal Reserve's movement toward greater transparency in the mid-1990s offers a natural experiment that allows us to investigate the response of the yield curve level, slope and curvature to federal funds rate innovations. Prior to the mid-1990s the yield curve typically steepened in response to such innovations, indicating that financial market participants interpreted changes in the federal funds rate as a signal of the Fed's concern about inflation. Consistent with our hypothesis, since the mid-1990s, as the Fed moved toward greater transparency and as inflation expectations became better anchored, innovations in the federal funds rate have little or no effect on the yield curve slope.
Keywords: yield curve, Federal Reserve transparency, principal components, slope of yield curve, fed funds rate
JEL: E4 - Money and Interest Rates: General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Jan 07 2019 Manuscript Accepted : Feb 05 2020

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