MONETARY POLICY IMPACT ON THE YIELD CURVE-US CASE UNDER HETEREGENEOUS ECONOMIC ENVIRONMENT (2000-2009)
MONETARY POLICY IMPACT ON THE YIELD CURVE-US CASE UNDER HETEREGENEOUS ECONOMIC ENVIRONMENT (2000-2009)

Summary/Abstract: The monetary policy targets the very short end of the yield curve although real economic activity is largely dependent upon the medium to long-term market interest rates. Conventional wisdom agrees that, given efficient market conditions, decrease in the monetary policy target rate leads to an immediate decrease in market interest rates; yet evidence for this view is elusive. Bringing the foundations of Expectation Hypothesis (EH) and empirical analysis explains that monetary policy impact monotonically decreases over the yield curve in US. The impact appears to be waning at a faster pace and concentrate on a preferred habitat towards shorter end at times of financial and economic uncertainties. This invites policy attention, especially at times of economic uncertainty, on the part of monetary policy effectiveness and market confidence in US to resurrect economic activities.

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