How do changes in monetary policy affect
the term structure of interest rates?

Shu Wu
Department of Economics
The University of Kansas
Lawrence, KS 66045
785-864-2868
shuwu@ku.edu
 

ABSTRACT

This paper provides a new analysis of the effects of monetary policy on the term structure of interest rates using a tractable dynamic asset pricing model which incorporates a responsive monetary policy rule. The model shows how a change in the policy rule simultaneously affects inflation, interest rates, volatilities, co-movements between long and short rates, and is able to account for some empirical regularities of the term structure across different policy regimes in the United States.